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Auditor Report of State Trading Corporation Of India Ltd.

Mar 31, 2018

INDEPENDENT AUDITOR''S REPORT

To the Members of

The State Trading Corporation of India Limited Report on the Standalone Financial Statements

We have audited the accompanying standalone Ind AS financial statements of THE STATE TRADING CORPORATION OF INDIA LIMITED ("the Company"), which comprise the Balance Sheet as at 31^st March, 2018, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flow and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information, in which are incorporated the returns for the year ended on that date audited by the branch auditors of Company''s eight branches at Ahmedabad, Bangalore, Bhopal, Chennai, Cochin, Hyderabad, Kolkata and Mumbai.

Management''s Responsibility for the Standalone Ind AS financial statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone Ind AS financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under Section 133 of the Act, read with relevant rules issued thereunder. 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 standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these standalone Ind AS 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 thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Standalone Ind AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the Standalone Ind AS financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the Standalone Ind AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal financial control relevant to the Company''s preparation of the Standalone Ind AS 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 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 Standalone Ind AS financial statements.

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

Basis for Qualified Opinion

(i) Reference is invited to Note no. 9.5 and 26.1, Trade receivable includes Rs,2076.70 crore (previous year Rs,1904.24 crores) and other income includes interest of Rs,259.47 crore (previous year Rs,231.93) booked during the current year on over dues from one of the business associates on account of goods supplied in earlier years. The dues are stated to be secured by EMD of Rs,29.73 crore and personal guarantee of chairman of its holding company. Consequent upon Conciliation Agreement dated 15.11.2011 and further settlement agreement dated 17.05.2012 the entire dues were payable to the company by 10.11.2012. During the year, the Business Associate remitted an amount of Rs,100 crore (previous year Rs,70.18 crore) on the directions of Hon''ble Supreme Court. Considering the poor recovery, non-availability of security, dispute by party with respect to interest charged, and age of outstanding dues, interest income should not be recognized as per concept of prudence.

Considering the overall circumstances surrounding the recoverability of outstanding dues of Rs,2076.70 crores, we are not in a position to ascertain whether the amount is fully recoverable or not. We are informed by the management that petition for execution of decree as per Conciliation Agreements under the Arbitration and Conciliation Act, 1996 has been filed before the Hon''ble Supreme Court wherein it has been held that decree is final. The party has submitted payment proposal before the Hon''ble Apex Court which is still subjudice before the Hon''ble Apex Court. Cases U/s 138 of Negotiable Instruments Act are also filed by the company before the Hon''ble High Court Delhi. The Enforcement Directorate and CBI are also investigating into the matter about cheating and fraud done by the party. We have also been provided affirmative Board Resolution dt. 14.02.2017 and outcome dt. 30.05.201 7 that all possible efforts are extended for recovery of the dues through legal process and company is assured of recovering the dues.

(ii) With respect to contingent assets disclosed, the management has not provided any substantive evidence in support of probability of recovery, hence we are not in a position to form an opinion thereon.

(iii) Reference is invited to Note 4.1, the company has not made provision of Rs,132.83 crores being the amount payable to L&DO for execution of lease deed of company''s one of the property, hence to that extent provision for impairment of fixed assets is short made.

(iv) Reference is invited to Note no. 9.16 as regard provision of Rs,3.58 crore made against Rs,10.53 crore recoverable from one of the business associate, the management has considered Rs,6.13 crore towards value of immovable property provided as security. Since the company is not able to sale the property inspite of various auctions, hence in our opinion till realization of such security, its value should not be considered for ascertainment of provision for doubtful debts. Had the company made the provision of said amount, net profit of current year would have been lower by Rs,5.77 crore, retained earning and trade receivable (current assets) would have been lower by Rs,5.77 crore.

(v) Mumbai branch auditor has reported that debit balances appearing in Bhopal branch pertaining to security deposit and loans & advances of Rs,0.19 crore has not been written off pending approval from competent authority. Had the company written off these balances, net profit of current year would have been lower by Rs,0.19 crore, retained earning and deposits and loans & advances would have been lower by Rs,0.19 crore.

The cumulative effect of above observations (i), (iii), (iv) & (v) is that net profit of current year would have been net loss of Rs,357.59 crore, retained earning and assets would be lower by Rs,398.26 crore and Rs,265.43 crore respectively and claims payable would have been higher by Rs,132.83 crore.

Emphasis of Matters

We draw attention to the following matters in the Notes to the standalone Ind AS financial statements:

a) Reference is invited to Note no. 20.2 & 20.5, the bank accounts of the company are classified as non performing asset by all the financing banks due to non payment of dues by the company. The company has prepared the accounts on going concern basis considering the various actions being taken by the management under the supervision of the administrative ministry.

b) Reference is invited to Note no. 38.3, regarding contingent liability of Rs,83.32 crore payable to foreign supplier as per arbitral award, the company has filed an appeal against the arbitration award in the HonRs,ble Delhi High Court and Company deposited Rs,33.05 crore with court as per direction of Delhi High Court. Court proceedings are completed and Court judgment is reserved. The transaction was undertaken on behalf of Department of Fertilizer (DOF) and is being regularly followed up. Hence, no provision is considered necessary.

c) Reference in invited to Note no. 38.4, regarding contingent liability of Rs,90.73 crore along with interest payable to a foreign supplier on account of import of Pluses in earlier years as per majority arbitration award passed in favour of foreign supplier. The company has filed an appeal against the majority arbitration award in the Hon''ble Delhi High Court. This transaction was undertaken on behalf of Ministry of Consumer Affairs (MOCA), which is being regularly followed -up. In view of above, no provision is considered necessary.

d) Reference is invited to Note no.14.2 regarding trade advance of Rs,87.39 crore recoverable from one of parties against which the company has initiated legal actions including criminal proceedings. Pending outcome of legal steps initiated for recovery, full provision of Rs,87.39 crore was made in earlier year. However, the company was successful in getting arbitration award of Rs,110.00 crore in its favour along with 12% interest per annum from 1^stMay 2006 till realization of award which has been objected by the party and hearing is pending before Hon''ble High Court, New Delhi.

e) Reference is invited to Note no. 11.4 regarding Non-Current Claim Recoverable under other financial assets Rs,3.92 crore recoverable from one of the business associate and counter claim against company for an amount of Rs,39.41 crore (Rs,39.41 crore) by an associate. Legal proceedings are going on, As per the legal opinion obtained the ultimate outcome of the case may be in favour of company. Hence no provision and liability has been recognized in this respect.

f) Reference is invited to Note no. 22.2 regarding claim of Rs,80.03 crore towards property tax dues raised by NDMC, New Delhi on the company. The company has made the part payment of Rs,20 crore pending the review of assessment by NDMC and judgment of appeals filed there against in Hon''ble Patiala District Court New Delhi.

g) Reference is invited to Note no. 9.6, regarding non-current trade receivable Rs,568.44 crore on account of export of pharma products to foreign buyers on back to back basis. As there is default in the payment against export bills by the buyers which have ultimately gone into liquidation, litigation process have been initiated by the Company as well as by Indian Associates and their bankers. A claim of Rs,527.86 crore has been admitted by the liquidator and decree for Rs,62.47 crore by Hon''ble High Court Mumbai. There is however corresponding credit balance of Rs,568.44 crore under trade payables. Management does not anticipate any liability on this account.

h) Reference is invited to Note no.9.9, regarding non current trade receivable of Rs,787.65 crore under the Credit Linked Insurance Scheme (CLIS) for export of gold jewellery etc. against which corresponding credit balance of Rs,342.19 crore are available, leaving net receivable of Rs,445.46 crore. Actions against the Business Associate have been initiated. The matter is being pursued legally and company is hopeful of recovery. As a measure of abundant caution, full provision of Rs,445.46 crore being net receivable, has been made in earlier year.

i) Reference is invited to Note no. 9.7, regarding non current trade receivables of Rs,9.83 crore (net of provision for diminution in value of stock) recoverable from one of the business associates for goods sold in earlier years. The overdue is secured by pledge of stocks in favour of STC. Upon non-payment of overdue receivables, legal actions have been initiated against the business associate u/s 138 of Negotiable Instruments Act, 1881 and civil hearings are in progress. Another PSU company MSTC had made a claim in respect of ownership of some of the pledged stock sold by the STC to business associate. The case is pending at Hon''ble Mumbai High Court.

j) Reference is invited to Note no.9.10, regarding other trade receivables of Rs,41.92 crore on account of export of agro commodities to foreign buyers through Indian business associates against which credit balance of Rs,41.92 crore is available under trade payable. The foreign buyer defaulted in making payment and upon non-receipt of the dues from business associate, the Company has initiated necessary legal steps against business associates for recovery. Considering the legal enforceability of the agreement and corresponding credit of Rs,41.92 crore, no provision is considered necessary.

k) Reference is invited to Note no.11.3, regarding claim recoverable of Rs,5.48 crore from one of the business associate on account of quality variations in material supplied. Considering the current status, no provision is considered necessary by the company.

l) Reference is invited to Note no.9.2, regarding current trade receivables of Rs,89.75 Crore which is overdue on account of pending reconciliation issues/performance guarantee. No provision has been considered necessary by the company since the outstanding amount is secured by corresponding credit balance available in sundry creditors.

m) Reference is invited to Note no. 9.11, regarding non current trade receivable of Rs,10.21 crore recoverable from MARKFED, Govt. of Maharashtra (GOM) towards supply of RBD Palmolien under PDS Scheme during the years 2010-11 and 2011-12, pending for final reconciliation at their end. Matter is being constantly taken up with MARKFED, Govt. of Maharashtra for recovery. As a matter of prudence, full provision of Rs,10.21 crore has been made during the previous year 2016-17.

n) The credit of input tax payable to recipient of common maintenance services provided by the company at its Delhi office is not determined and transferred to recipients as required by Section 171 of Delhi GST Act, 2017 and CGST Act, 2017.

o) Reference is invited to Note no. 9.3, regarding non current trade receivable of Rs,122.95 crore from one of the business associate for goods sold in the earlier years which is overdue. STC has filed compliant for commission of offences under section 405, 406, 409, 415 & 420 read with sec. 107, 120-B, 34 of Indian Penal Code in the court of Judicial Magistrate (First Class) against the associate. As a matter of prudence, full provision for Rs,122.95 crore had been made in previous year.

p) Reference is invited to Note no. 51 & 52 relating to pending reconciliation/confirmation of balances in parties accounts, claims recoverable, advances and current and other liabilities and consequential adjustment that may arise on reconciliation.

q) Reference is invited to Note no. 9.8 regarding non current trade receivables of Rs,17.28 crore recoverable from one of the business associates for goods sold in earlier years. Criminal complaints u/s 138 of Negotiable Instruments Act, 1881 and contempt application filed before Hon''ble High Court, New Delhi are under progress against the business associate. As a matter of prudence, provision for full amount of Rs,17.28 crore had been made in previous year.

Our opinion is not modified in respect of these matters.

Qualified Opinion

In our opinion and to the best of our information, according to the explanations given to us and except for the matters described in the Basis for Qualified Opinion paragraph referred above, the aforesaid standalone Ind AS 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 31^st March, 2018 and its profit, total comprehensive income, its cash flows and the changes in equity for the year ended on that date.

Other Matter

We did not audit the Ind AS financial statements/information of eight branches included in the standalone Ind AS financial statements of the Company whose Ind AS financial statements/financial information reflect total assets of Rs,1247.91 crore as at 31^st March, 2018 and total revenues of Rs,7741.43 crore for the year ended on that date, as considered in the standalone Ind AS financial statements. The Ind AS financial statements/information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report of such branch auditors and management replies to the observations of the branch auditors.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2016 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, based on our observations, reports received from branch auditors in respect of branches not visited by us, and explanations received from management, we give in the Annexure ''A'' statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

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

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit except certain records/information at Mumbai branch, Chennai branch, and balance confirmation of parties as mentioned in para no. (p) above under Emphasis of Matters.

(b) Except for the effect of the matters described in the Basis for Qualified Opinion paragraph above, in our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us except the system of maintaining stock records by branch with respect to goods kept with third party needs to be further strengthen.

(c) The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by the branch auditors have been sent to us alongwith management replies to the observations of the branch auditors and have been properly dealt with by us in preparing this report.

(d) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Equity dealt with by this Report are in agreement with the books of account and with the returns received from the branches not visited by us.

(e) Except for the effect of the matters described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid standalone Ind AS financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act, read with relevant rules issued thereunder.

(f) The matters described in the Basis of Qualified Opinion paragraph above, in our opinion may have an adverse effect on functioning of the company

(g) Being a Government Company, section 164(2) of Companies Act, 2013 regarding whether any director is disqualified from being appointed as a director is not applicable to the Company in view of notification no. G.S.R.463 (E) dt. 05.06.2015.

(h) 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

(i) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its Standalone Ind AS financial statements as referred to in Note No. 38, 38.1, 38.2, 38.3 & 38.4 to the Standalone Ind AS financial statements.

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts.

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

3. As required by C&AG of India through directions issued under Section 143(5) of the Act, we give a report in the attached Annexure ''C''.

Re: The State Trading Corporation of India Limited

Referred to in Paragraph 1 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date

1. (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets except that absence of proper tagging at Mumbai Branch,

(b) The fixed assets were physically verified by the management during the year. We have been informed that no material discrepancies were noticed on such physical verification wherever done, except at Mumbai, Agra and Jalandhar branch where the management is in process of reconciling the discrepancies noticed on such physical verification.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company except for immovable properties referred to in Annexure- E whose title deeds are not held in the company''s name.

3. As informed to us, the Company has not granted any loans, secured or unsecured to companies, firms, limited liability partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013 (''the Act''). Accordingly, clauses (iii)(a), (b) & (c) of paragraph 3 of the Order are not applicable to the Company.

4. According to the information and explanations given to us, the Company has not given any loans, or made any investments or provided any guarantees or security to the parties covered under sections 185 and 186 of the Act. Accordingly, paragraph 3 (iv) of the Order is not applicable to the Company.

5. The Company has not accepted any deposits from the public during the year and consequently, the directives issued by Reserve Bank of India, the provisions of sections 73 to 76 of the Act and rules framed there under are not applicable to the Company. However certain old amount are outstanding in advances from customers/credit balance in customer account which as explained to us is immaterial and is subject to reconciliation and adjustment, if any.

6. As informed by the management, the Central Government has not prescribed the maintenance of cost records under section 148 (1) of the Act for the Company.

7. (a) According to the records of the Company, undisputed statutory dues including provident fund, employees'' state insurance, income-tax, sales-tax, goods and service tax (GST), service tax, duty of customs, duty of excise, value added tax, cess and other statutory dues have been generally regularly deposited with the appropriate authorities. There were no undisputed amounts payables in respect of the aforesaid dues which were outstanding as at 31^stMarch, 2018 for a period of over six months from the date they became payable except Rs,0.01 crore professional tax payable at Mumbai branch.

(b) According to the information and explanations given to us, there are following disputed statutory dues aggregating Rs,2.56 crore on account of Income tax, Rs,767.15 crore on account of Sales tax/VAT, Rs,50.73 crore on account of Service tax and Rs,0.06 crore under BPDRA which have not been deposited.

Name of the statute	Nature of dues	Amount (Rs, in Crore)	Period to which the amount relates	Forum where dispute is pending
Income Tax
Income Tax Act	Income Tax	1.73	2008-09	DCIT, Delhi
Income Tax Act	Penalty	0.83	2010-11	CIT Appeal, Delhi
Sales Tax
TNGST/AST/CST (Chennai Branch)	Sales Tax (incl. penalty)	0.83	1974-75, 1975-76, 1985-86 to 1987-88, 1989-90 & 1991-92	Hon''ble Madras High Court
Central Sales Tax Act (Chennai Branch)	Central Sales Tax	0.01	1987-88	Appellate Tribunal

Name of the statute	Nature of dues	Amount (Rs, in Crore)	Period to which the amount relates	Forum where dispute is pending
Custom Act (Chennai Branch)	Custom Duty	4.16	2017-18	SLP to be filed in Supreme Court
Central Sales Tax Act (Bengaluru Branch)	Central Sales Tax, Interest & Penalty	0.08	2014-15	Asstt. Commissioner Commercial Tax
Bihar Sales Tax Act (Kolkata Branch)	Sales Tax	0.01	1989-90	Sales Tax Appellate Tribunal
Orrisa Sales Tax Act (Kolkata Branch)	Sales Tax	0.01	1988-89	Commissioner (Appeals), Orrissa
Central Sales Tax Act (Kolkata Branch)	Central Sales Tax	0.02	1993-94 to 1995-96	Hon''ble Assam High Court
Central Sales Tax Act (Kolkata Branch)	Central Sales Tax	0.23	2003-04	Joint Commissioner, Sales Tax
West Bengal Vat Act/ Central Sales Tax Act (Kolkata Branch)	Vat & CST	0.02	2011-12	Joint Commissioner, Commercial Tax
Maharashtra Sales Tax Act (Mumbai Branch)	BST (Sales Tax)	0.69	1992-93 & 1996-97	Maharashtra Sales Tax Tribunal
Maharashtra Sales Tax Act (Mumbai Branch)	BST & CST	46.88	1993-94, 2000-01 & 2003-04	Joint Commissioner, Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch)	BST, CST & MVAT	*391.06	2004-05, 2006-07, 2009-10 & 2011-12	Joint Commissioner, Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch)	CST & WCT	*290.52	2008-09 & 2012-13	Deputy Commissioner, Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch)	MVAT	**32.63	2006-07	Joint Commissioner, Sales Tax

Name of the statute	Nature of dues	Amount (Rs, in Crore)	Period to which the amount relates	Forum where dispute is pending
Service Tax
Finance Act, 1994 (Kolkata Branch)	Service Tax	7.29	2005-06 & 2006-07	CESTAT
Finance Act, 1994	Service Tax	7.96	2007-08 to 2013-14	Commissioner Service Tax
Finance Act, 1994	Service Tax	3.54	2014-15	Principal Commissioner Service Tax
Finance Act, 1994 (Mumbai Branch)	Service Tax	*16.54	01.10.2004 to 31.03.2011	Service Tax Appellate Tribunal Mumbai
Finance Act, 1994 (Mumbai Branch)	Service Tax	*0.13	01.04.2011 to 31.03.2012	Service Tax Appellate Authority Mumbai
Finance Act, 1994 (Mumbai Branch)	Service Tax	**14.03	01.04.2012 to 31.03.2015	Service Tax Assessing Authority Mumbai
Finance Act, 1994 (Mumbai Branch)	Service Tax	**1.24	01.04.2015 to 30.06.2017	Joint Commissioner of CGST & Central Excise Mumbai
Certificate Dues Liability
BPDRA	Certificate Dues Liability	0.06	1971-72 & 1976-77 to 1978-79	Concerned Department

* a stay order has been received against the amounted disputed.

** the matter is reminded back to the nodal office in charge for fresh assessment

* Appeal rejected and branch has contested / in process of contesting the order ** Show cause notice received

8. In our opinion and according to the information and explanations given to us, the Company has defaulted in repayment of loans or borrowing to banks as mentioned below. The Company does not have any loans or borrowing from any financial institution or government or dues to debenture holders during the year

9. The Company did not raise any money by way of initial public offer or further public offer (including debt instruments).

10. According to the information and explanations given to us, no material fraud by the company or on the Company by its officers or employees has been noticed or reported during the course of our audit except fraud of Rs,5.63 crore by a business associate in Kolkata.

11. I n our opinion and according to the information and explanations given to us, the Company has paid / provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Act.

12. I n our opinion and according to the information and explanations given to us, the Company is not a nidhi company. Accordingly, paragraph 3 (xii) of the Order is not applicable to the Company.

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

14. According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

15. According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with him. Accordingly, paragraph 3 (xv) of the Order is not applicable to the Company.

16. The Company is not required to be registered under section 45-1A of the Reserve Bank of India Act, 1934

For P Jain & Company Chartered Accountants Firm Regn. No.000711C

(Pankaj Jain)

Place : New Delhi Partner

Date : 28.05.2018 M. No. 097279

Name of the bank/ financial institution	Amount of instalment/ interest due (Rs, In Crore)	Due date	Date of payment	Delay (days)
Exim Bank (Instalment)	5.00	03.10.2017	23.10.2017	20
Exim Bank (Instalment)	5.00	01.01.2018	Not paid	-
Exim Bank (Interest)	1.25	03.10.2017	10.10.2017	7
Exim Bank (Interest)	1.27	04.12.2017	Not paid	-
Exim Bank (Interest)	1.08	01.01.2018	Not paid	-
Exim Bank (Interest)	1.21	01.02.2018	Not paid	-
Exim Bank (Interest)	1.10	01.03.2018	Not paid	-
Exim Bank (Interest)	1.24	03.04.2018	Not paid	-
Exim Bank (Interest)	0.11	Various dates as referred above	Not paid	-
Bank of Baroda	56.26	Invocation of BG	Not paid	-
Syndicate Bank	25.41	Working capital loans	Not paid	-
Indian Overseas Bank	215.95	Working capital loans	Not paid	-
Union Bank of India	308.19	Working capital loans	Not paid	-
Indian Bank	10.12	Working capital loans	Not paid	-

Report on the Internal Financial Controls under Clause (i) 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 The State Trading Corporation of India Limited ("the Company") as on 31^st March, 2018 in conjunction with our audit of the Ind AS financial statements of the Company for the year 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 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 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 Companies Act, 2013.

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 on Audit of Internal Financial Controls Over Financial Reporting (the "Guidance Note") and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, 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 Institute of Chartered Accountants of India. 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 (IFCFR)

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.

Basis for Qualified Opinion

(i) Following design gap are noticed in IFCFR such as lawyer''s certificate not taken in litigation cases, monitoring and record keeping of pledged/owned inventory not maintained, ageing analysis and reconciliation with vendors not reviewed, manual calculations for leaves, no HR Software, insurance of goods, IT policy not documented, disaster management

plan not documented, no data backup for divisions other than corporate accounts, data backup of accounting records not maintained for branches, maker checker mechanism not in place for sales invoicing, fixed assets tag numbers not maintained in fixed assets register, the risk control matrix neither been reviewed nor updated, huge gap in time lines fixed by the corporate account and actual reporting of financials by the divisions and branches etc.

(ii) With respect to Mumbai branch of the Company, the branch auditor has reported certain material weaknesses in internal financial control over financial reporting such as inadequate- IT & general controls, internal control system with regards to pledged inventory including maintenance of adequate records and physical verification, customer acceptance, credit evaluation and establishing customer credit limit, internal audit coverage, large financial exposure in litigated matters & pending statutory litigation involving tax demands, financial reporting system, compliance with statutory dues, maintenance of case wise legal expenses register, maintenance of fixed asset register, non-availability of required information and documents in respect of old outstanding, security deposit, EMD, advances and other deposit received and paid.

(iii) Reference is invited to Note no. 51 & 52 relating to pending reconciliation/ confirmation of balances in parties accounts, claims recoverable, advances and current and other liabilities and consequential adjustment that may arise on reconciliation.

A ''material weakness'' is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company''s annual or interim financial statements will not be prevented or detected on a timely basis.

Qualified Opinion

In our opinion, the Company has, except for effects of the material weaknesses described above on achievement of the objectives of the control criteria, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31^stMarch, 2018, 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.

Other Matters

Our aforesaid report under Section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls over financial reporting insofar as it relates to eight branches at Ahmedabad, Bangalore, Bhopal, Chennai, Cochin, Hyderabad, Kolkata and Mumbai is based on the corresponding reports of the auditors of such branches and management replies to the observations of the branch auditors.

For P. Jain & Company

Chartered Accountants

Firm Regn. No.000711C

(Pankaj Jain)

Place : New Delhi _Partner

Date : 28.05.2018 M. No. 097279

Mar 31, 2016

To the Members of

The State Trading Corporation of India Limited Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of THE STATE TRADING CORPORATION OF INDIA LIMITED ("the Company"), which comprise the Balance Sheet as at 31st March, 2016, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information, in which are incorporated the Returns for the year ended on that date audited by the branch auditors of Company''s eight branches at Ahmedabad, Bangalore, Bhopal, Chennai, Cochin, Hyderabad, Kolkata and Mumbai.

Management''s Responsibility for the Standalone Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with 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 standalone financial statements based on our audit.

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 the 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 accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

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

Opinion

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

Emphasis of Matters

We draw attention to the following matters in the Notes to the financial statements:

a) Reference is invited to Note no.18.1 relating to contracts of scraps, where transactions of purchases and sales and recoveries had not taken place in terms of contracts. Pending outcome of legal steps initiated for recovery, full provision of Rs. 87.39 crore was made in earlier year. However, the company was successful in getting arbitration award of Rs. 110.00 crore in its favour along with 12% interest per annum from 1st May 2006 till realization of award which has been objected by the party and hearing is pending in this case before Hon''ble High Court, New Delhi.

b) Reference is invited to Note no. 19.1; regarding long term trade receivable Rs. 568.44 crore on account of export of pharma products to foreign buyers on back to back basis. As there is default in the payment against export bills by the buyers which have ultimately gone into liquidation, litigation process have been initiated by the Company as well as by Indian Associates and their bankers. A claim of Rs. 527.86 crore has been admitted by the liquidator and decree for Rs. 63 crore by Mumbai High Court. There is however corresponding credit balance of Rs. 568.44 crore under trade payables. Management does not anticipate any liability on this account.

c) Reference is invited to note no. 22.1, regarding trade receivable of Rs. 122.77 Crore due from Jhagadia Copper Limited. The Business Associate is under liquidation. The entire amount is secured by pledge of stocks to the company (procured under advance license with export obligation) and the company has also solely staked claim on an industrial (mortgaged) land of about 90 acres at Alibagh, Maharashtra before Hon''able Gujarat High Court. Management does not anticipate any liability on this account.

d) Reference is invited to Note no 22.2 & 27.1, regarding trade receivable of Rs. 1740.42 crore and recognition of income of Rs. 228.33 crore during the year from one of the business associates who have stopped operation of their plant due to extreme volatility of prices. Consequent upon Conciliation Agreement dated 15.11.2011 and further settlement agreement dated 17.05.2012 the entire dues were payable to the company by 10.11.2012. During the year, the Business Associate remitted an amount of Rs. 144.90 crore on the directions of Hon''ble Supreme Court. The decree was noted to be final and legal case for enforcement of decree is under consideration of Hon''ble Supreme Court. The management is hopeful of full recovery.

e) Reference is invited to Note no. 25.1, regarding claims recoverable include Rs. 2.72 crore towards carrying costs for delayed lifting of pulses by State Governments. Claim for the same was lodged during the year 2011-12 and the same is being followed up with the State Governments. Since, there is credit balance available with the Company, no provision is considered necessary.

f) Reference is invited to Note no. 45(b), regarding contingent liability of Rs. 82.57 crore payable to foreign supplier as per arbitral award, for which the Company has filed appeal in the Hon''ble Delhi High Court and simultaneously lodged the claim with Ministry of Consumer Affairs as transaction was under taken on their behalf. In view of the above no provision is considered necessary.

g) Reference is invited to Note no.19.2, regarding long term trade receivable of Rs. 787.65 crore under the Credit Linked Insurance Scheme (CLIS) for export of gold jewellery etc. against which corresponding credit balance of Rs. 342.18 crore are available, leaving net receivable of Rs. 445.47 crore. Actions against the Business Associate have been initiated. The matter is being pursued legally and company is hopeful of recovery. As a measure of abundant caution full provision of Rs. 445.47 Crore being net receivable, has been made.

h) Reference is invited to Note no. 22.3, regarding trade receivable of Rs. 20.56 crore recoverable from one of the Business Associates for goods sold in earlier years. The entire overdue is secured by pledge of stocks of Rs. 4.17 crore and Rs. 39 crore stock of family concern of the Associate in favour of the Company. The Company''s receivables are being monitored by court and Company has received Rs. 10.50 crore during the current year. Court has directed the company and the associate to submit their up to date account for recovery of balance dues. Hence, no provision is considered necessary.

i) Reference is invited to Note no. 19.6, regarding long term trade receivable of Rs. 58.55 crore due from one of the Business Associates for goods sold in earlier years. The entire balance overdue is secured by pledge of stocks in favour of the Company. The Company has invoked risk sale clause of the agreement and twice floated tenders for sale of pledged stocks - both faced interim injunction for stay, out of which the first one got vacated. The Company has also filed winding up petition and criminal complaints i.e. case u/s 138 of Negotiable Instruments Act and contempt application for misleading the court against the business associate. The management is hopeful of the full recovery.

j) Reference is invited to Note no. 19.8, regarding long term trade receivable of Rs. 10.21 crore recoverable from MARKFED, Govt. of Maharashtra (GOM) towards supply of RBD Palmolien under PDS Scheme during the year 2010-11 and 2011-12. All amounts relating to this supply were received by the Company except the outstanding balance of Rs. 10.21 crore pending for final reconciliation at their end. Matter is being constantly taken up with MARKFED, Govt. of Maharashtra for recovery. The management is hopeful of the full recovery.

k) Reference is invited to Note no. 19.4, regarding long term trade receivables of Rs. 12.05 crore recoverable from one of the Business Associate for goods sold in the earlier years. The entire overdue is secured by duly insured pledged stocks in favour of the Company valuing Rs. 10.19 crore under CWC custody. Further, cases u/s 138 of Negotiable Instruments Act for Rs. 8.62 crore have been filed against the Associate. Provision of Rs. 1.86 crore has been created during the current financial year for the unsecured portion.

l) Reference is invited to Note no. 22.4, regarding trade receivables of Rs. 10.28 crore recoverable from one of the Business Associates for sale of coal. The Business Associate has paid an amount of Rs. 0.10 crore during the year. The entire dues are secured by mortgage of free hold land. The Business Associate has undertaken to repay all dues along with interest on receipt of CDR package. Company has filed legal and criminal case against Business Associate. In view of this, no provision is considered necessary.

m) Reference is invited to Note no. 12.5, regarding non adjustment in financial books of fixed assets having net book value of Rs. 0.64 crore destroyed due to flood during the year at Chennai Branch against which an adhoc claim of '' 0.26 crore has been received from insurance company.

n) Reference is invited to Note no. 55(b), the reconciliation of physical verification of fixed assets at corporate office with books is under process, impact thereof could not be ascertained.

o) Reference is invited to Note no. 47 & 48 relating to pending reconciliation/ confirmation of balances in parties accounts, claims recoverable, advances and current and other liabilities and consequential adjustment that may arise on reconciliation.

Our opinion is not modified in respect of these matters.

Other Matter

We did not audit the financial statements/information of eight branches included in the standalone financial statements of the Company whose financial statements/financial information reflect total assets of Rs. 1414.30 crore as at 31^st March, 2016 and total revenues of Rs. 4461.99 crore for the year ended on that date, as considered in the standalone financial statements. The financial statements/information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report of such branch auditors and management replies to the observations of the branch auditors.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

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

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit except certain records/information at Mumbai branch, legal case details at Ahmedabad branch and balance confirmation of parties as mentioned in para no. (o) above under Emphasis of Matters.

(b) In our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us, however the system of maintaining stock records by branch with respect to goods kept with third party need to be ensured.

(d) 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 returns received from the branches not visited by us.

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

(f) Being a Government Company, section 164(2) of Companies Act, 2013 regarding whether any director is disqualified from being appointed as a director is not applicable to the Company in view of notification no. G.S.R.463 (E) dt. 05.06.2015.

(g) 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

(h) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements as referred to in Note No. 18.1, 19.1 to 19.06, 22.1 to 22.4, 45 & 46 to the financial statements.

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts.

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company except a sum of Rs. 0.03 crore towards interim dividend for financial year 2008-09 declared on 23.01.2009 and deposited in April, 2016.

3. Company has not complied with the provisions of section 149 of the Companies Act, 2013 read with regulation 17 of Securities and Exchange Board of India (Listing Obligations and Disclosure requirements) Regulations 2015 with regard to appointment of Independent Directors and Women Director.

4. As required by C&AG of India through directions issued under Section 143(5) of the Act, we give a report in the attached Annexure ''C''.

1. (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets except that absence of proper tagging at Mumbai Branch and updating of fixed asset register at Corporate Office.

(b) The fixed assets were physically verified by the management during the year except physical verification of fixed assets at Corporate Office, which is under process. We have been informed that no material discrepancies were noticed on such physical verification wherever done.

2. As explained to us, verification of inventories undertaken by the Company through surveyor from time to time. In respect of the goods in the custody of third parties, certificate is obtained from the Clearing & Handling Agents or the warehousing corporation or from the concerned parties. During the year goods stored under the custody of Central Warehousing Corporation amounting to Rs. 24.22 crore were found theft in case of M/s Akshata Mercantile Private Limited and goods amounting to Rs. 13.6 crore were found theft in case of M/s Dankuni Steels Pvt. Ltd.

6. As informed by the management, the Central Government has not prescribed the maintenance of cost records under section 148 (1) of the Act for the Company.

7. (a) According to the records of the Company, 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 statutory dues have been generally regularly deposited with the appropriate authorities. There were no undisputed amounts payables in respect of the aforesaid dues which were outstanding as at 31st March, 2016 for a period of over six months from the date they became payable.

(b) According to the information and explanations given to us, there are following disputed statutory dues aggregating Rs. 69.00 crore on account of Income tax, Rs. 2327.35 crore on account of Sales tax/VAT and Rs. 33.37 crore on account of Service tax.

Name of the statute	Nature of dues	Amount (Rs. in Crore)	Period to which the amount relates	Forum where dispute is pending
Income Tax
Income Tax Act	Income Tax	3.26	2009-10	DCIT, Delhi
Income Tax Act	Penalty	2.13	2009-10	ITAT, Delhi
Income Tax Act	Income Tax	50.22	2010-11	CIT(A), Delhi
Income Tax Act	Income Tax	6.19	2011-12	CIT(A), Delhi
Income Tax Act	Income Tax	5.47	2012-13	CIT(A), Delhi
Income Tax Act	Income Tax	1.73	2008-09	DCIT, Delhi

Sales Tax
TNGST/AST/CST (Chennai Branch)	Sales Tax (incl. penalty)	0.84	1974-75, 1975-76, 1986-87, 1989-90 & 1991-92	HonRs.ble Madras High Court
Central Sales Tax Act (Chennai Branch)	Central Sales Tax	0.01	1987-88	Appellate Tribunal
Bihar Sales Tax Act (Kolkata Branch)	Sales Tax	0.01	1989-90	Sales Tax Appellate Tribunal
Central Sales Tax Act (Kolkata Branch)	Central Sales Tax	0.07	1981-82	Assessing Officer
Orrisa Sales Tax Act (Kolkata Branch)	Sales Tax	0.01	1988-89	Commissioner (Appeals), Orrissa
Central Sales Tax Act (Kolkata Branch)	Central Sales Tax	0.02	1993-94 to 1995-96	Hon''ble Assam High Court
Central Sales Tax Act (Kolkata Branch)	Central Sales Tax	0.23	2003-04	Joint Commissioner, Sales Tax
Delhi VAT Act	Sales Tax	1017.43	2006-07	Special Commissioner VAT
Delhi VAT Act	Sales Tax	0.34	2007-08	DVAT, Appellate Tribunal
Delhi VAT Act	Sales Tax	0.02	2010-11	VAT Officer
Delhi VAT Act	Sales Tax	2.33	2008-09	VAT Officer
Maharashtra Sales Tax Act (Mumbai Branch)	BST (Sales Tax)	13.85	1992-93, 1993-94, 1996-97 & 2000-01	Maharashtra Sales Tax Tribunal
Maharashtra Sales Tax Act (Mumbai Branch)	BST /CST/ MVAT	*462.22	2003-04, 2004-05, 2006-07 & 2009-10 to 2011-12	Joint Commissioner, Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch)	CST/ MVAT	*539.66	2005-06	Deputy Commissioner, Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch)	CST	#290.31	2008-09	Deputy Commissioner, Sales Tax

* including Rs. 579.91 crore against which stay order has been received

# under process of filing an appeal

Name of the statute	Nature of dues	Amount (Rs. in Crore)	Period to which the amount relates	Forum where dispute is pending
Service Tax
Finance Act, 1994 (Kolkata Branch)	Service Tax	7.29	2005-06 & 2006-07	CESTAT¹
Finance Act, 1994	Service Tax	7.96	2007-08 to 2013-14	Commissioner Service Tax
Finance Act, 1994 (Mumbai Branch)	Service Tax	16.67	01.10.2004 to 31.03.2012	Service Tax Appellate Tribunal Mumbai
Finance Act, 1994 (Mumbai Branch)	Service Tax	**1.45	01.04.2012 to 31.03.2014	Service Tax Assessing Authority Mumbai

8. In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of loans or borrowing to banks except default of 3 days at Mumbai branch as mentioned below. The Company does not have any loans or borrowing from any financial institution or government or dues to debenture holders during the year.

Name of the bank/financial institution	Amount of installment due	Due date	Date of payment	Delay (days)
Exim Bank	10 Crore	01.01.2016	04.01.2016	3 days

9. The Company did not raise any money by way of initial public offer or further public offer (including debt instruments) and term loans during the year. Accordingly, paragraph 3 (ix) of the Order is not applicable to the Company.

11. In our opinion and according to the information and explanations given to us, the Company has paid / provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Act. However certain reimbursements made are subject to confirmation by Board of Directors.

12. In our opinion and according to the information and explanations given to us, the Company is not a nidhi company. Accordingly, paragraph 3 (xii) of the Order is not applicable to the Company.

13. According to the information and explanations given to us and based on our examination of the records of the Company, transactions with the related parties are generally 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.

16. The Company is not required to be registered under section 45-1A of the Reserve Bank of India Act, 1934

We have audited the internal financial controls over financial reporting of The State Trading Corporation of India Limited ("the Company") as on 31^st March, 2016 in conjunction with our audit of the financial statements of the Company for the year ended on that date.

Management''s Responsibility for Internal Financial Controls

Auditors'' Responsibility

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 judgement, 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 authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised 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

Qualified Opinion

(i) With respect to Mumbai branch of the Company, the branch auditor has reported certain material weaknesses in Internal financial control over financial reporting such as inadequate- IT & general controls, internal control system with regards to pledged inventory, customer acceptance & credit evaluation, internal audit coverage, large financial exposure in litigated matters & pending statutory litigation involving tax demands.

(ii) Reference is invited to Note no. 47 & 48 relating to pending reconciliation/ confirmation of balances in parties accounts, claims recoverable, advances and current and other liabilities and consequential adjustment that may arise on reconciliation.

A ''material weakness'' is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the subsidiary Company''s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, the Company has, except for effects of the material weaknesses described above on achievement of the objectives of the control criteria, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March, 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.

Other Matters

Annexure-''C'' to the Independent Auditors'' Report

Directions indicating the areas to be examined by the Statutory Auditors during the course of audit of annual accounts of The State Trading Corporation of India Limited (Standalone) for the year 2015-16 issued by the Comptroller & Auditor General of India under Section 143(5) of the Companies Act, 2013.

Sl. No.	Area Examined	Observation/Finding
1	Whether the company has clear title/lease deeds for freehold and leasehold land for which title/lease deeds are not available.	Refer Annexure ''D'' below.
2	Whether here are any cases of waiver/write off of debts/loans/interest etc., if yes, the reasons there for and amount involved.	Rs. 1.40 crore written off as these were old cases, remote possibility of recovery, necessary approval have been taken from the competent authority.
3	Whether proper records are maintained for inventories lying with third parties & assets received as gift/grant from the Government or other authorities.	As reported by Mumbai branch auditor, no stock records are maintained by the branch for stock lying with third party. Records are maintained at the godown by the custodian.
Annexure âDâ

S. No.	Location of Property	Property Description	Document Found	Area
1	New Delhi	Land & Building at Jawahar Vyapar Bhawan, Tolstoy Marg (Office Building)	Agreement for lease	2.559 Acre
2	New Delhi	STC /MMTC Housing Colony, Aurbindo Marg	Agreement (true copy)	Not yet bifurcated between STC,MMTC & HHEC
3	Mumbai	6 no. flats at Sai Darshan Apartment, Santacruz (W)	Confirmation Deed	3984 Sq. ft.
4	New Delhi	8 no. flats at AGVC Complex	Execution of Lease Deed pending	14424 Sq. ft.

ANNEXURE ''E'' TO INDEPENDENT AUDITOR''S REPORT Re: The State Trading Corporation of India Limited

Referred to in Paragraph 1(c) of our report on Companies (Auditor''s Report) Order, 2016 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act,

S. No.	Location of Property	Property Description	Audit observation	Area	Gross Block after revaluation (Rs. in crore)
1	New Delhi	(i) Land & Building at Jawahar Vyapar Bhawan, Tolstoy Marg (Office Building) (ii) STC /MMTC Housing Colony, Aurbindo Marg	Process of issuance of sub divided lease deeds in the name of company and its co-owners is pending.	2.559 Acre	548.33 (land) 185.91 (Building)
2	New Delhi	8 no. flats at AGVC Complex	Execution of Lease Deed pending.	14424 Sq. ft.	28.42
3	Mumbai	6 no. flats at Sai Darshan Appartment, Santacruz (W)	Registration of conveyance deeds is pending.	3984 Sq. ft.	33.19

For P. Jain & Company

Chartered Accountants

Firm Regn. No. 000711C

Sd/-

(Pankaj Jain)

Place: New Delhi Partner

Date: 28.05.2016 M. No. 097279

Mar 31, 2015

We have audited the accompanying standalone financial statements of THE STATE TRADING CORPORATION OF INDIA LIMITED ("the Company"), which comprise the Balance Sheet as at 31st March, 2015, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information, in which are incorporated the Returns for the year ended on that date audited by the branch auditors of Company''s seven branches at Ahmedabad, Bangalore, Bhopal, Chennai, Hyderabad, Kolkata and Mumbai.

Management''s Responsibility for the Standalone Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with 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 standalone financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act.

Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and 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 the 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 accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2015 and its profit and its cash flows for the year ended on that date.

Emphasis of Matters

We draw attention to the following matters in the Notes to the financial statements:

a) Reference is invited to note no.18.1 relating to contracts of scraps, where transactions of purchases and sales and recoveries had not taken place in terms of contracts. Pending outcome of legal steps initiated for recovery, full provision of Rs. 87.39 Crore was made in earlier year. However, the Company is successful in getting Arbitration Award of Rs 110.00 Crore in its favour along with 12% interest per annum from 1st May 2006 till realization of award which has been objected by the party and hearing is pending in this case before Hon''ble High Court, New Delhi.

b) Reference is invited to note no. 19.1, regarding long term trade receivable Rs. 568.44 Crore on account of export of pharma product to foreign buyer on back to back basis. As there is default in the payment against export bills by the buyers which have ultimately gone into liquidation, litigation process have been initiated by the Company as well as by Indian Associates and their bankers. A claim of Rs. 527.86 Crore has been admitted by the liquidator. There is however corresponding credit balance of Rs 568.44 Crore under trade payables. Management does not anticipate any liability on this account.

c) Reference is invited to note no. 22.1, regarding trade receivable of Rs. 122.46 Crore due from Jhagadia Copper Limited. The Company is under Liquidation. The entire amount is secured by pledge of stocks to the Company (procured under advance license with export obligation). Financial impact of the same cannot be ascertained at this stage.

d) Reference is invited to note no 22.2, regarding long term trade receivable of Rs. 1640.53 Crore due from one of the business associates who have stopped operation of their plant due to extreme volatility of prices. Consequent upon Conciliation Agreement dated 15.11.2011 and further settlement agreement dated 17.05.2012 the entire dues were payable to the Company by 10.11.2012. During the year, the business associate remitted an amount of Rs. 33 crore and has sought more time for payment. The same was not agreed by the Company and case for enforcement of decree was filed before the Hon''ble Supreme Court and decree was noted to be final. The management is hopeful of full recovery.

e) Reference is invited to note no. 25.1, regarding claims recoverable include Rs. 2.72 crore towards carrying costs for delayed lifting of pulses by State Governments. Claim for the same was lodged during the year 2011-12 and the same is being followed up with the State Governments. Since, there is credit balance available with the Company, no provision is considered necessary.

f) Reference is invited to note no. 45(b), regarding contingent liability of Rs. 82.57 crore payable to foreign supplier as per arbitral award, for which the Company has filed appeal in the Hon''ble Delhi High Court and simultaneously lodged the claim with Ministry of Consumer Affairs as transaction was under taken on their behalf. In view of the above no provision is considered necessary.

g) Reference is invited to note no.19.2, regarding long term trade receivable of Rs. 788.47 Crore under the Credit Linked Insurance Scheme(CLIS) for export of gold jewellery etc. against which corresponding credit balance of Rs. 342.18 Crore are available, leaving net receivable of Rs. 446.29 Crore. Actions against the business associate have been initiated. The matter is being pursued legally and company is hopeful of recovery. As a measure of abundant caution full provision of Rs. 446.29 Crore being net receivable, has been made.

h) Reference is invited to note no. 19.5, regarding long term trade receivable of Rs. 59.23 crore recoverable from one of the business associates for goods sold in earlier years. The entire overdue is secured by pledge of stocks in favour of the Company. The party has paid an amount of Rs. 19.50 crore during the current year. However, upon non- payment of entire overdue, the Company resorted to sale of the pledged stocks to another party and an amount of Rs. 33.65 crore was received as advance payment up to 31.03.2015 from the buyer against sale. Hence, no provision is considered necessary.

i) Reference is invited to note no. 19.8, regarding long term trade receivable of Rs. 58.55 Crore due from one of the business associates for goods sold in earlier years. The entire balance overdue is secured by pledge of stocks in favour of the Company. In current year payment of Rs. 5 Crore received from the party. The company has invoked risk sale clause of the agreement and floated tender for sale of pledged stocks. The management is hopeful of the full recovery.

j) Reference is invited to note no. 19.10, regarding long term trade receivable of Rs. 10.21 crore recoverable from MARKFED, Govt. of Maharashtra (GOM) towards supply of RBD Palmolien under PDS Scheme during the year 2010-11 and 2011-12. All amounts relating to this supply were received by the Company except the outstanding balance of Rs. 10.21 crore pending for final reconciliation at their end. Matter is being constantly taken up with MARKFED, Govt. of Maharashtra for recovery. The management is hopeful of the full recovery.

k) Reference is invited to note No. 47 & 48 relating to Pending reconciliation/confirmation of balances in parties accounts, claims recoverable, advances and current liabilities and consequential adjustment that may arise on reconciliation.

Our opinion is not modified in respect of these matters.

Other Matter

We did not audit the financial statements/information of seven branches included in the standalone financial statements of the Company whose financial statements/financial information reflect total assets of Rs. 1439.32 crore as at 31st March, 2015 and total revenues of Rs. 4897.55 crore for the year ended on that date, as considered in the standalone financial statements. The financial statements/information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report of such branch auditors and management replies to the observations of the branch auditors.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2015 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, based on our observations, reports received from branch auditors in respect of branches not visited by us, and explanations received from management, we give in the Annexure ''A'' statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

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

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit except certain old records/information at Mumbai branch, legal case details at Ahmedabad branch and balance confirmation of parties as mentioned in para no. (k) above under Emphasis of Matters.

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

(c) The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by the branch auditors have been sent to us along with management replies to the observations of the branch auditors and have been properly dealt with by us in preparing this report.

(d) 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 returns received from the branches not visited by us.

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

(f) On the basis of the written representations received from the directors appointed during financial year 2014-15 at the time of appointment and further confirmed by the Company none of the directors are disqualified as on 31st March, 2015 from being appointed as a director in terms of Section 164 (2) of the Act. Prior to 1-4-2014 in terms of Notification no GSR 829(E) dt. 21-10-2013 issued by Department of Company Affairs, Government of India, the provisions of section 274(1)(g) of Companies Act, 1956 were not applicable to the Company.

(g) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements as referred to in Note No. 18.1, 19.1 to 19.10, 22.1, 22.2, 25.1, 45 & 46 to the financial statements.

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, and as required on long-term contracts including derivative contracts.

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company except a sum of Rs. 24750/- as referred in note no. 6.2 to the financial statements.

3. The Company has not complied with the provisions of section 149 of the Companies Act, 2013, read with clause 49 of the listing agreement in respect to Independent Directors.

4. As required by C&AG of India through directions issued under Section 143(5) of the Act, we give a report in the attached Annexure ''B''.

For P. Jain & Company

Chartered Accountants

Firm Regn. No.000711C

Sd/-

Pankaj Jain

Place : New Delhi Partner

Date : 28th May, 2015 M. No. 097279

ANNEXURE ''A''TO INDEPENDENT AUDITOR''S REPORT

(Re: The State Trading Corporation of India Limited

Referred to in Paragraph 1 under the heading of "Report on Other Legal and Regulatory

Requirements" of our report of even date

1. (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets except that updation of fixed assets register with respect to addition made in the new premises at Chennai Branch.

(b) The fixed assets were physically verified by the management during the year except physical verification of fixed assets at Corporate Office, which is under process. We have been informed that no material discrepancies were noticed on such physical verification wherever done.

2. (a) As explained to us, verification of inventories undertaken by the Company through surveyor from time to time.

In respect of the goods in the custody of third parties, certificate is obtained from the Clearing & Handling Agents or the warehousing corporation or from the concerned parties. In our opinion, the verification of goods like coal, wheat, copper etc. is not by actual weighment, but by actual receipt and dispatch without accounting for losses due to handling /obsolete / non- moving stock. In respect of stock of Wheat 1925.780 MTs at Kandla Port lying since the year 2004-05 as there was no confirmation of the quality and quantity available, the value of the same is being taken as nil at Ahmedabad Branch.

(b) In our opinion, though the procedures for physical verification is in place and instructions & guidelines are issued from time to time for verification of stock/inventories, but the same be followed strictly for materials which are handled by and are in custody of third parties. The Ahmedabad Branch auditor has reported that the management has not laid down proper guidelines with regard to the periodicity and procedure for verification which is necessary to strengthen its control over materials.

(c) The Company is not maintaining any separate stock register. However, transaction-wise-stock details are compiled for control over the stock and necessary details are obtained from the custodian of stock viz., Port Authorities, Warehouse of Business Associates. Discrepancies, wherever noticed on verification have been properly dealt with, except in case of stock of wheat at Kandla as mentioned in Para 2(a) above in our report.

3. As informed to us, 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 Companies Act, 2013 (''the Act''). Accordingly, clauses (iii)(a)&(b) of paragraph 3 of the Order are not applicable to the Company.

4. In our opinion and 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 with regard to purchase of inventory and fixed assets and for the sale of goods. On the basis of our examination and according to the information and explanation given to us, we have not observed any continuing failure to correct major weaknesses in internal control system during the course of the audit. However, internal control system regarding review, realization of advances and other claims and reconciliation of balance of sundry debtors and creditors require strengthening. The deficiencies/weakness in implementing the internal control system i.e. no specific authorization level to make modifications in the entries prepared in the system reported at Chennai Branch. The internal control system for the purchase and sale of inventory, services and fixed assets need to be strengthened, considering the size of the branch and the nature of its business at Ahmedabad Branch.

5. The Company has not accepted any deposits from the public during the year and consequently, the directives issued by Reserve Bank of India, the provisions of sections 73 to 76 of the Act and rules framed there under are not applicable to the Company. However certain old amount are outstanding in advances from customers/credit balance in customer account which as explained to us is immaterial and is subject to reconciliation and adjustment, if any.

6. As informed by the management, the Central Government has not prescribed the maintenance of cost records under section 148 (1) of the Act for the Company.

7. (a) According to the records of the Company, 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 other statutory dues have been generally regularly deposited with the appropriate authorities. There were no undisputed amounts payables in respect of the aforesaid dues which were outstanding as at 31st March, 2015 for a period of over six months from the date they became payable.

(b) According to the information and explanations given to us, there are following disputed statutory dues aggregating Rs. 68.53 crore on account of Income tax, Rs. 2159.91 crore on account of Sales tax/VAT and Rs. 15.25 crore on account of Service tax.

Amount Name of the statute Nature of dues (Rs. in Crore)

Income Tax

INCOME TAX ACT Income Tax 4.07

INCOME TAX ACT Penalty 2.58

INCOME TAX ACT Income Tax 50.22

INCOME TAX ACT Income Tax 6.19

INCOME TAX ACT Income Tax 5.47

Sales Tax

TNGST/AST/CST Sales Tax (incl. penalty) 0.84 (Chennai Branch)

Central Sales Tax Act (Chennai Central Sales Tax 0.01 Branch)

Bihar Sales Tax Act Sales Tax 0.02 (Kolkata Branch)

Central Sales Tax Act Central Sales Tax 0.07 (Kolkata Branch)

Orrisa Sales Tax Act Sales Tax 0.01 (Kolkata Branch)

Central Sales Tax Act (Kolkata Branch) Central Sales Tax 0.02

Central Sales Tax Act (Kolkata Branch) Central Sales Tax 0.23

Delhi VAT Act Sales Tax 1017.43

Delhi VAT Act Sales Tax 0.34

Delhi VAT Act Sales Tax 0.02

Maharashtra Sales Tax Act Sales Tax 140.17

Maharashtra Sales Tax Act Sales Tax 1000.75

Service Tax

Finance Act, 1994 Service Tax 7.29 (Kolkata Branch)

Finance Act, 1994 Service Tax 7.96

Name of the statute Period to which the Forum where dispute is pending amount relates

Income Tax

INCOME TAX ACT 2009-10 ITAT, Delhi

INCOME TAX ACT 2009-10 CIT(A), Delhi

INCOME TAX ACT 2010-11 CIT(A), Delhi

INCOME TAX ACT 2011-12 CIT(A), Delhi

INCOME TAX ACT 2012-13 CIT(A), Delhi

Sales Tax

TNGST/AST/CST (Chennai Branch) 1974-75, 1975-76, 1986-87, 1987-88, Hon''ble Madras High Court 1989-90 & 1991-92

Central Sales Tax Act (Chennai Branch) 1987-88 Appellate Tribunal

Bihar Sales Tax Act (Kolkata Branch) 1981-82 Sales Tax Appellate Tribunal

Central Sales Tax Act (Kolkata Branch) 1981-82 Assessing Officer

Orrisa Sales Tax Act (Kolkata Branch) 1988-89 Commissioner (Appeals), Orrissa

Central Sales Tax Act (Kolkata Branch) 1993-94 to 1995-96 Hon''ble Assam High Court

Central Sales Tax Act (Kolkata Branch) 2003-04 Joint Commissioner, Sales Tax

Delhi VAT Act 2006-07 Special Commissioner VAT

Delhi VAT Act 2007-08 DVAT, Appellate Tribunal

Delhi VAT Act 2010-11 Sales Tax Officer

Maharashtra Sales Tax Act 1992-93, 1996-97 & Maharashtra Sales Tax Tribunal 2000-01

Maharashtra Sales Tax Act 1993-94, 2002 to 2007 Joint Commissioner Sales Tax & 2010-11

Service Tax

Finance Act , 1994 2005-06 to 2006-07 CESTAT (Kolkata Branch)

Finance Act, 1994 2007-08 to 2013-14 Commissioner Service Tax

(c) According to the information and explanations given to us, the amounts which were required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 and rules there under has been transferred to such fund within time except a sum of Rs. 24750/-, as referred in note no. 6.2 to the financial statements.

8. The company has no accumulated losses at the end of financial year and has not incurred cash losses in the financial year and in the immediately preceding financial year.

9. Based on our audit procedure and the information and explanations given by the management, the Company has not defaulted in repayment of dues to financial institutions, banks or debenture holders during the year.

10. In our opinion and 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.

11. According to the information and explanations given to us, no term loan has been obtained by the Company during the year except renewal of existing working capital term loan of Rs. 216.28 crore for another two years.

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

For P. Jain & Company

Chartered Accountants

Firm Regn. No.000711C

Sd/-

Pankaj Jain

Place : New Delhi Partner

Date : 28th May, 2015 M. No. 097279

Mar 31, 2014

We have audited the accompanying financial statements of THE STATE TRADING CORPORATION OF INDIA LIMITED (the Company), which comprise the Balance Sheet as at 31st March 2014, the Statement of Profit & Loss and Cash Flow Statement for the year then ended, annexed thereto in which are incorporated the accounts of the corporate office audited by us and the accounts of 7 independent branches audited by the other independent auditors and summary of significant accounting policies and other explanatory information.

MANAGEMENT''S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Company''s 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 13th September, 2013 of the Ministry of Corporate Affairs in respect of section 133 of Companies Act , 2013 and in accordance with the accounting principles generally accepted in India. 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.

AUDITORS'' RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standard 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 risk 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 Company''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.

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

EMPHASIS OF MATTERS

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

a) Reference is invited to note no.18.1 relating to contracts of scraps, where transactions of purchases and sales and recoveries had not taken place in terms of contracts on behalf of a business associate. The company has alleged fraud by the business associates and matter has been referred to CBI. We also understand that two ex-Directors and a General Manager have been charge sheeted. However, in absence of details of the charge sheets and the inquiries, we are unable to opine if there was a fraud or a suspected management fraud and comment on any misstatements made in these accounts in respect of the above transactions. Pending outcome of legal steps initiated for recovery/ CBI probe, full provision of Rs. 87.39 Crore was made in earlier year. However, the company is successful in getting Arbitration Award of Rs 110.00 Crores in its favour along with 12% interest per annum from 1st May 2006 till realization of award which has been objected by the parties and hearing is pending in this case.

b) Reference is invited to note no. 19.1, regarding Rs. 568.44 Crores on account of export of pharma product to foreign buyer on back to back basis. As there is default in the payment against export bills by the buyers which have ultimately gone into liquidation, litigation process have been initiated by STC as well as by Indian Associates and their bankers. A claim of Rs. 527.86 Crore has been admitted by the liquidator. There is however corresponding credit balance of Rs 568.78 Crore under trade payables. Management does not anticipate any liability on this account.

c) Reference is invited to note no. 19.2 , regarding long term trade receivable of Rs. 788.47 Crore under the Credit Linked Insurance Scheme(CLIS) for export of gold jewelry etc. against which corresponding credit balance of Rs 342.18 Crores are available leaving net receivable of Rs 446.29 Crores. Actions against the associate have been initiated. The matter is being pursued legally and company is hopeful of recovery. As a measure of abundant caution full provision of Rs 446.29 Crores has been made in respect of this account.

d) Reference is invited to Note no. 19.3, regarding Long Term Trade Receivable which includes Rs 4.94 Crores towards reimbursement of loss in supply of Edible Oil under PDS scheme of Govt. of India for which claim was pending with Govt. of India. However as a matter of prudence full provision has been made during the year.

e) Reference is invited to note no. 19.5, in respect of dues from one of the business associates against which there is no stock pledged to the company. Upon non-receipt of dues from the associate, the company has initiated necessary legal steps for its recovery. Full provision for the net amount of Rs. 9.23 Crores has been made and Rs. 81.82 Crores was written off during the year.

f) Reference is invited to note no. 19.8, regarding claims recoverable amounting to Rs 114.95 Crores towards reimbursement of actual losses on import of pulses under Government account since the year 2006-07 onwards. The claim for the same has been lodged with the Ministry of Consumer Affairs, Government of India and is pending since long. The reimbursement has been delayed for over three years and as a matter of prudence,company has made full provision of the claim recoverable, during the year.

g) Reference is invited to note no. 22.1, relating to Rs. 122.22 Crores due from Jhagadia Copper Limited, the Company is under Liquidation and in the process of reconstruction by asset reconstruction Company (India) Limited. The dues are fully secured by pledge of Stock. Financial impact of the same cannot be ascertained at this stage.

h) Reference is invited to note no 22.2, Trade Receivable of Rs. 1468.14 Crores recoverable from one of the business associates who have stopped operation of their plant due to extreme volatility of prices. Consequent upon Conciliation Agreement dated 15.11.2011 and further settlement agreement dated 17.05.2012 the entire dues were payable to STC by 10.11.2012. However, the associate did not pay the entire dues and has sought more time for payment. The same was not agreed by the company and legal action against the associate has been initiated. The associate has affirmed to repay entire dues along with interest. The associate has paid an amount of Rs. 57.77 Crores during current year and Rs 23 Crores in April 2014. Management is hopeful of the full recovery.

i) Reference is invited to note no. 25.1, regarding claims recoverable of Rs 5.28 Crores towards imports of pulses on behalf of UP Government for sales under PDS Scheme valid up to 30th June 2012. Claim in this regard was submitted to MOCA in March 2013 i.e. after the last date of submission of claim due to delay in receipt of utilization certificate from State Govt. and the matter is being pursued. Since, there is credit balance of Rs. 9.08 Crores on these accounts received from UP Government, no provision is considered by the management.

j) Note No. 47 & 48 relating to Pending reconciliation/confirmation of balances in parties accounts and current liabilities and consequential adjustment that may arise on reconciliation.

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:

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

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

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. As required by the Companies (Auditor''s Report) Order, 2003 (the Order) issued by the Central Government of India in terms of Section 227(4A) of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

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

a. We have obtained all the information and explanation which to the best of our knowledge and belief were necessary for the purpose of our audit except for information pertaining to charges levied on two ex- Directors and a General Manager and details of inquires in respect of transaction referred to in above Para (a) of Emphasis of Matter and further except as otherwise stated in the report, and the record of the cases being handled by the vigilance department of the company and the accounting of the consequential financial effect thereof on the matters under its scrutiny in such cases;

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 such books and proper returns adequate for the purpose of our audit have been received from the branches not audited by us. Reports of the Branch Auditors and management replies to the observation of the Branch Auditors have been considered while preparing our report;

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 accounts;

d. In our opinion, the Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement comply with the Accounting Standards notified under the Act read with the General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013;

e. In terms of Notification No. GSR 829 (E) dated 21.10.2003 issued by the Department of the Company Affairs, Government of India, the provision of Section 274(1)(g) of the Companies Act, 1956, are not applicable to the Company.

ANNEXURE TO INDEPENDENT AUDITORS'' REPORT

(Referred to in paragraph 1 under ''Report on Other Legal and Regulatory Requirements'' section of our Report of even date)

i. In respect of its Fixed Asset:

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

b) The fixed assets were physically verified by the management during the year. We have been informed that no material discrepancies were noticed on such physical verification.

c) In our opinion, substantial part of the fixed assets has not been disposed of during the year and going concern status of the company is not affected.

ii. In respect of its Inventories:

a) As explained to us, verification of inventories undertaken by the company through surveyor from time to time. In respect of the goods in the custody of third parties, certificate is obtained from the Clearing & Handling Agents or the warehousing corporation or from the related parties. In our opinion, the verification of goods like coal, wheat, etc. is not by actual weighment, but by actual receipt and dispatch without accounting for handling losses. In respect of stock of Wheat 1925.78 MTs at Kandla Port lying since the year 2004-05 as there was no confirmation of the quality and quantity is available, the value of the same is being taken as NIL.

b) In our Opinion, though the procedures for physical verification is in place and instruction & guidelines are issued from time to time for verification of stock/ inventories but the same is not being followed strictly for all materials which are handled by and are in custody of third parties.

c) The company is not maintaining any separate stock register. However, transaction-wise stock details are compiled for control over the stock and necessary details are obtained from the custodian of stock viz., Port Authorities, Warehouse or Business Associates. Discrepancies, wherever noticed on verification have been properly dealt with, except in case of stock of wheat at Kandla as mentioned in Para 2 (a) above in our report.

iii. In respect of Loans availed/granted:

(a) As informed, the Company has not granted any loans, secured or unsecured, to Companies, firms and other parties, covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, clauses (iii) (b), (iii) (c) and (iii) (d) of paragraph 4 of the order are not applicable to the company.

(b) As informed, the Company has not taken any loans, secured or unsecured from companies, firms or other Parties covered in register maintained under section 301 of the Companies Act, 1956. Accordingly, clauses (iii) (f), and (iii) (g) of paragraph 4 of the order are not applicable to the company.

iv. 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 with regard to purchases of inventory, fixed assets and also the sale of goods. Further on the basis of our examination and according to the information and explanation given to us, we have not observed any instance of continuous failure to correct major weaknesses in internal control procedures. However, internal control procedure regarding review, realization of advances and other claims and reconciliation of balance of sundry debtors and creditors require strengthening.

v. In respect of contracts / arrangements under section 301 of the Companies Act, 1956:

(a) According to the information and explanations provided by the management, we are of the opinion that there are no particulars of contracts or arrangementsthat need to be entered in the register maintained under section 301 of the Companies Act, 1956.

(b) There was no transaction hence clause 5 (b) of paragraph 4 of the order is not applicable.

vi. In our opinion and as per the explanation provided to us, the provisions of Section 58A & 58AA of the Companies Act, 1956 and the rules framed there under are not applicable, as the Company has not accepted any deposit from the public.

vii. The internal audit is conducted by outside firms of Chartered Accountants and in our opinion is commensurate with the size and nature of its business, except Mumbai Branch Auditor has suggested for strengthening of Internal Audit at the Branch.

viii. As informed by the management, the Central Government has not prescribed maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 for any of its product of the company.

ix. In respect of statutory dues:

(a) According to the records of the Company, undisputed statutory dues including provident fund, investor education and protection fund, Employee State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom duty, Excise duty, Cess and other statutory dues have been generally regularly deposited with the appropriate authorities. There were no undisputed amounts payables in respect of the aforesaid dues which were outstanding as at 31st March, 2014 for a period of over 6 Months from the date they became payable.

(b) Disputed Statutory dues are aggregating to Rs. 56.67 Crores on account of Income Tax, Rs. 1,492.38 Crores on account of Sales Tax and Rs. 11.32 Crores on account of Service Tax. The details are as under:

(Rs. in Crores)

Income Tax:

Amount Period to which the Name of the Statute Nature of amount relates the Dues

CIT(A) INCOME TAX 0.61 1981-82

CIT(A) INCOME TAX 2.58 2009-10

ITAT, DELHI INCOME TAX 3.26 2009-10

CIT(A) INCOME TAX 50.22 2010-11

Total S6.67

Sales Tax: (Rs. in Crores)

Amount FORUM Nature of the Dues

MADRAS HIGH COURT Sales Tax 0.84

SALES TAX APPELLATE TRIBUNAL (Chennai Branch ) Sales Tax 001

MAHARASHTRA SALES TAX TRIBUNAL Sales Tax 14.02

JOINT COMMISIONER OF SALES TAX (Maharashtra) Sales Tax 456.98

PENDING IN TRIBUNAL(BST) (Kolkata) Sales Tax 0.02

ODISHA HIGH COURT Central Sales Tax 0.07

PENDING WITH SOD & BOARD (Kolkata) Sales Tax 0.0

WEST BENGAL COMMERCIAL TAXES APPELLATE Sales Tax 0.07

BST ORDER NOT YET RECEIVED (Kolkata) Sales Tax 0.0

PENDING IN APPEAL 88-89 (Kolkata) Sales Tax 0.02

PENDING WITH HIGH COURT Central Sales Tax (Assam) 0.0 JOINT COMMISIONER (PENDING IN APPEAL TILL 27/06/2011) Central Sales Tax (West Bengal) 0.22 STO, consequent to set aside order Sales Tax 1,017.43

DVAT Appellate Tribunal Sales Tax 0.34

PENDING WITH FIRST APPELATE AUTHORITY, DELHI Sales Tax 2.33

Total 1,,492.38

Service Tax (Rs. in Crore)

FORUM Nature of Dues Amount

Commissioner of Service Tax Service Tax 4.03

CESTAT(Kolkata) Service Tax 7.29

Total 11.32

Sales Tax: (Rs. in Crores)

Period to which the FORUM amount relates

MADRAS HIGH COURT 1974-75 to 1989-90

SALES TAX APPELLATE TRIBUNAL (Chennai Branch ) 1987-88

MAHARASHTRA SALES TAX TRIBUNAL 1992-93 to 2000-01

JOINT COMMISIONER OF SALES TAX (Maharashtra) 1990-91 to 2004-05

PENDING IN TRIBUNAL(BST) (Kolkata) 1981-82

ODISHA HIGH COURT 1981-82

PENDING WITH SOD & BOARD (Kolkata) 1983-84

WEST BENGAL COMMERCIAL TAXES APPELLATE 1985-86

BST ORDER NOT YET RECEIVED (Kolkata) 1988-89

PENDING IN APPEAL 88-89 (Kolkata) 1988-89

PENDING WITH HIGH COURT 1993-94 to 1995-96 JOINT COMMISIONER (PENDING IN APPEAL TILL 27/06/2011) 2003-04 STO, consequent to set aside order 2006-07

DVAT Appellate Tribunal 2007-08

PENDING WITH FIRST APPELATE AUTHORITY, DELHI 2008-09

Service Tax (Rs. in Crores) FORUM Assessment Year

Commissioner of Service Tax 2007-08 to 2011-12

CESTAT(Kolkata) 2005-06 to 2007-08

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

xi. Based on our audit procedure and the information and explanations given by the management, the company has not defaulted in repayment of dues to any Financial Institution or Banks or Debenture holders.

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

xiii. In our Opinion, the Company is not a Chit Fund company or a Nidhi/Mutual benefit fund/society. Therefore, the provisions of clause (xiii) of paragraph 4 of the order are not applicable to the Company.

xiv. The company is not dealing in or trading in securities, debentures and other investments and therefore clause regarding of maintaining proper records of transactions in respect of trading and timely entries is not applicable. All shares have been held by the company in its own name.

xv. In our opinion and according to the information and explanations given to us, the Company has not given any guarantees for loans taken by others from banks or Financial Institutions.

xvi. The Company has not raised any new term loans during the year. Hence Clause (xvi) of Paragraph 4 of the order is not applicable.

xvii. 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.

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

xix. The Company has not issued any debentures during the year. Hence, clause (xix) of paragraph 4 of the order is not applicable.

xx. The Company has not raised any money by way of public issue during the Year.

xxi. Based upon the audit procedures performed and the information and explanations given by the management, we report that no material fraud on or by the company has been noticed or reported during the course of our audit except a case of misappropriation / removal of pledged stock by an associate having an outstanding balance of Rs. 81.82 Crores under Trade and Miscellaneous advances. It was informed that criminal complaint was lodged with Additional Commissioner of Police (EOW) on 13th March, 2014 and also complaint was lodged with CBI Mumbai on 21st April, 2014 after the Balance Sheet date. As there was no security available against the advance and considering the remote possibility the amount of Rs. 81.82 Crores has been fully written off during the year. Matter is under investigation. (Refer Note no. 19.5)

For Chandiok & Guliani Chartered Accountants FRN: 001199N

Sd/- B.B. Kalia Place : New Delhi (Partner) Date : 27th May, 2014 Membership No. 085772

Mar 31, 2013

1. Report on Financial Statements

We have audited the accompanying financial statements of THE STATE TRADING CORPORATION OF INDIA LIMITED ("the Company"), which comprise the Balance Sheet as at 31st March 2013, the Statement of Profit & Loss and Cash Flow Statement for the year then ended and a summary of significant accounting policies and other explanatory information, in which are incorporated the accounts of the corporate office audited by us and the accounts of 7 independent branches audited by the other Auditors. These financial statements are the responsibility of the Company''s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. Management''s responsibility for the financial statements

Management is responsible for the preparation of these Financial Statements that give a true and fair view of the financial position, financial performance and Cash Flow 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 presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

3. Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standard 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 risk 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.

4. Emphasis of Matters

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

a) Reference is invited to note no.18.1 relating to contracts of scraps, where transactions of purchases and sales and recoveries had not taken place in terms of contracts on behalf of the business associate. The company has alleged fraud by the business associates and matter was referred to CBI in earlier years. We also understand that two ex-Directors and a General Manager had been charge sheeted. However, in absence of details of the charge sheets and pending inquiries, we are unable to opine if there was a fraud or a suspected management fraud and comment on any misstatements made in these accounts in respect of the above transactions.

b) Reference is invited to note no.18.2 relating to Wheat transactions undertaken on behalf of Business associates, disposal of goods and recovery had not taken place as per contract due to quality problems and there was stock of wheat and unrecovered amounts outstanding from the business associates and suppliers. Also case of theft and misappropriation of unlifted stocks exported to Bangladesh were noticed for which legal action has been initiated, entire dues including recoverable from FCI aggregating to Rs.58.41 Crores has been provided/ written off in earlier years. Further as the matter is not yet fully resolved, additional amount of sales tax liability for non-export of 30392.010 MT of wheat procured from FCI is not ascertainable. The financial impact at this stage cannot be ascertained.

c) Reference is invited to note no.18.3, in respect of over dues of Rs.94.09 Crores from Business Associate against which there are no stock pledged to the company. However the company has initiated legal steps for recovery.

As the associate has submitted the payment plan with the initial remittance after the balance sheet date management is hopeful of realization of entire dues thus no provision was considered necessary at this stage.

d) Reference is invited to note no.19.1, regarding Rs.568.44 Crores on account of export of pharma product to foreign buyer on back to back basis. As there is default in the payment against export bills by the buyers which have ultimately gone in to liquidation, litigation processes have been initiated by STC as well as by Indian Associates and their bankers. A claim of Rs.527.86 Crore has been admitted by the liquidator. There is however corresponding credit balance of Rs.568.60 Crore under trade payables. Management does not anticipate any liability on this account.

e) Reference is invited to note no.19.2, Long term trade receivable include Rs.788.71 Crore under the Credit Linked Insurance Scheme(CLIS) for export of gold jewellery etc. against which corresponding credit balance of Rs.348.62 Crores are available leaving net receivable of Rs.440.09 Crores. Action against the associates has been initiated. An amount of Rs.1.28 Crores was realized from an associate during 2011-12. The matter is being pursued and the company is hopeful of the recovery. Yet as a measure of abundant caution a provision of Rs.69.56 Crores has been made during the year, making the total provision to Rs.108.01 Crores to the extent the company has already paid to Exim Bank as there are no commensurate recoveries from the associates.

f) Reference is invited to Note no.19.3, pending Long Term Trade Receivable of Rs.4.94 Crores towards reimbursement of loss in supply of Edible Oil under PDS scheme of Govt. of India. As the claim is under process with Govt. of India no provision was considered necessary by the management.

g) Reference is invited to note no.22.1, relating to trade receivable of Rs.121.99 Crores due from an associate, the Company is under liquidation and in the process of reconstruction by Asset Reconstruction Company (India) Limited. The dues are fully secured by pledge of stock. Financial impact of the same cannot be ascertained at this stage.

h) Reference is invited to note no.22.2, Trade Receivable includes Rs.1353.25 Crores recoverable from one of the associates for stock sold to them in earlier years who have stopped operation of their plant due to extreme volatility of prices. Consequent upon Conciliation Award dated 15.11.2011 and further settlement agreement dated 17.05.2012 the entire dues were payable to STC by 10.11.2012. However, the associate did not pay the entire dues and has sought more time for payment. The same was not agreed by the company and legal action against the associate has been initiated. As the associate has affirmed its commitment to repay entire dues with interest and had paid Rs.185.13 Crores during 2012-13. Management is hopeful of full recovery and no provision considered necessary.

i) Reference is invited to note no.25.1, regarding claims recoverable amounting to Rs.158.93 Crores towards the imports of pulses under Government account since the year 2006-07 onwards. The claim for the same has been lodged on Government which is under active consideration of Government for re-imbursement of actual loss as informed by Ministry of Consumer Affairs. An amount of Rs.11.70 Crores has been received from the Government after the balance sheet date towards the part payment against the claims. Management is hopeful of full recoveries.

j) Reference is invited to note no.25.2, regarding claim recoverable of Rs.49.18 Crores on account of edible oil import-PDS, which is under process by Ministry of Food and Public Distribution, Government of India and company is hopeful of full recovery.

k) Reference is invited to note no.25.3, regarding pending balance claim of Rs.5.28 Crores towards imports of pulses on behalf of UP Government for sales under PDS being pursued by the company with the Ministry of Consumer Affairs and management is hopeful of full recovery thus no provision was considered necessary.

l) Reference is invited to note no.46, the company has written off overdue receivable amounting to Rs.96.15 Crore pertaining to previous year export import transactions, where recovery is uncertain and withdrawn Rs.95.96 Crores from the Export/Import Contingency Reserve created out of appropriatations of earlier years profit with an objective to setoff such losses. There would have been loss of Rs.81.54 Crores instead of profit of Rs.14.42 Crores (before Tax) and EPS would have been (-) Rs.13 instead of Rs.2.99 for the year ended on 31st March, 2013, if the company had not utilized this reserve.

m) Note no.48 and 49 relating to pending reconciliation/ confirmation of balances in parties accounts and current liabilities and consequential adjustment that may arise on reconciliation.

5. Opinion

In our opinion and to the best of our information and according to the explanations given to us, the said financial statements subject to our observations in Paragraph 4 (a) to (m) above provisions and write offs in respect of which made in the financial statements based on the existing and known circumstances as reported in the said paragraphs and read together with Significant Accounting Policies and Notes to the Financial Statements and Other Notes, give the information required by the Companies Act, 1956, in the manner so required and also give a true and fair view in conformity with 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 the Statement of Profit and Loss, of the profit 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.

6. Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of Section 227(4A) of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the order.

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

a. We have obtained all the information and explanation which to the best of our knowledge and belief were necessary for the purpose of our audit except for information pertaining to charges levied on two ex- Directors and a General Manager and details of inquires in respect of transaction referred to in Para 4(a) above, and further except as otherwise stated in the report, and the record of the cases being handled by the vigilance department of the company and the accounting of the consequential financial effect thereof on the matters under its scrutiny in such cases;

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 such books and proper returns adequate for the purpose of our audit have been received from the branches not audited by us. Reports of the Branch Auditors and management replies to the observation of the Branch Auditors have been considered while preparing our report;

c. The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with the books of accounts;

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

e. In terms of Notification No. GSR 829 ( E ) dated 21.10.2003 issued by the Department of the Company Affairs, Government of India, the provision of Section 274(1)(g) of the Companies Act, 1956, are not applicable to the Company.

ANNEXURE TO INDEPENDENT AUDITORS'' REPORT

(Annexure referred to in paragraph 6 of our report of even date on the financial statements for the financial year ended 31st March, 2013 of the State Trading Corporation of India Limited)

(i) In respect of its Fixed Asset:

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

b) The fixed assets were physically verified by the management during the year. We have been informed that no material discrepancies were noticed on such physical verification.

c) In our opinion, substantial part of the fixed assets has not been disposed of during the year and going concern status of the company is not affected.

(ii) In respect of its Inventories:

a) As explained to us, verification of inventories undertaken by the company through surveyor from time to time. In respect of the goods in the custody of third parties, certificate is obtained from the Clearing & Handling Agents or the warehousing corporation or from the related parties. In our opinion, the verification of goods like coal, wheat, etc is not by actual weighment, but by actual receipt and dispatch without accounting for handling losses. In respect of stock of Wheat 1925.78 MTs at Kandla Port lying since the year 2004-05 as there was no confirmation of the Quality and quantity available the value of the same is being taken as NIL.

b) In our Opinion, though the procedures for physical verification is in place and instructions & guidelines are issued from time to time for verification of stock/ inventories but the same is not being followed strictly for all materials which are handled by and are in custody of third parties.

c) The company is not maintaining any separate stock register. However, transactions-wise stock details are compiled for control over the stock and necessary details are obtained from the custodian of stock viz., Port Authorities, warehouse or Business Associates. Discrepancies, wherever noticed on verification have been properly dealt with, except in case of stock of wheat at Kandla as mentioned in Para 2 (a) above in our report.

(iii) In respect of Loans availed/granted:

(a) As informed, the Company has not granted any loans, secured or unsecured, to Companies, firms and other parties, covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, clauses (iii) (b), (iii) (c) and (iii) (d) of paragraph 4 of the order are not applicable to the company.

(b) As informed, the Company has not taken any loans, secured or unsecured from companies, firms or other Parties covered in register maintained under section 301 of the Companies Act, 1956. Accordingly, clauses (iii) (f), and (iii) (g) of paragraph 4 of the order are not applicable to the company.

(iv) 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 with regard to purchases of inventory, fixed assets and also the sale of goods. Further on the basis of our examination and according to the information and explanation given to us, we have not observed any instance of continuous failure to correct major weaknesses in internal control procedures. However, internal control procedure regarding review, realization of advances and other claims and reconciliation of balance of sundry debtors and creditors require strengthening.

(v) In respect of contracts / arrangements under section 301 of the Companies Act, 1956:

(a) According to the information and explanations provided by the management, we are of the opinion that there are no particulars of contracts or arrangements that need to be entered in the register maintained under section 301 of the Companies Act, 1956.

(b) There was no transaction hence clause 5 (b) of paragraph 4 of the order is not applicable.

(vi) In our opinion and as per the explanation provided to us, the provisions of Section 58A & 58AA of the Companies Act, 1956 and the rules framed there under are not applicable, as the Company has not accepted any deposit from the public.

(vii) The internal audit is conducted by outside firms of Chartered Accountants and in our opinion is commensurate with the size and nature of its business except Mumbai Branch Auditor has suggested for strengthening of internal audit at the branch.

(viii) As informed by the management, the Central Government has not prescribed maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 for any of its product of the company.

(ix) In respect of statutory dues:

(a) According to the records of the Company, undisputed statutory dues including provident fund, investor education and protection fund, Employee State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom duty, Excise duty, Cess and other statutory dues have generally been regularly deposited with the appropriate authorities. There were no undisputed amounts payables in respect of the aforesaid dues which were outstandingas at March 31, 2013 for a period of over 6 Months from the date they became payables.

(b) Disputed Statutory dues are aggregating to Rs.64.55 Crores on account of Income Tax, Rs.439.09 Crores on account of Sales Tax and 7.29 Crores on account of Service Tax. The details are as under: -

Income Tax:

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

ITAT, DELHI INCOME TAX 7.40 2008-09

ITAT, DELHI INCOME TAX 6.93 2009-10

CIT (A) INCOME TAX 50.22 2010-11

Total 64.55

MADRAS HIGH COURT Sales Tax 0.84 1974-75 to 1989-90

SALES TAX APPELLATE TRIBUNAL (Chennai Branch) Sales Tax 0.01 1987-88

PENDING IN TRIBUNAL (BST) (Kolkata) Sales Tax 0.02 1981-82

ODISHA HIGH COURT Central Sales Tax 0.07 1981-82

PENDING WITH SOD & BOARD (Kolkata) Sales Tax 0.01 1983-84

WEST BENGAL COMMERCIAL TAXES APPELLATE Sales Tax 0.07 1985-86

BST ORDER NOT YET RECEIVED (Kolkata) Sales Tax 0.01 1988-89

PENDING IN APPEAL 88-89 (Kolkata) Sales Tax 0.02 1988-89

PENDING WITH HIGH COURT Central Sales Tax (Assam) 0.01 1993-94 to 1995-96

JOINT COMMISIONER (PENDING IN APPEAL TILL Central Sales Tax (West 27/06/2011) Bengal) 0.22 2003-04

STO, consequent to set aside order Sales Tax 0.34 2007-08

PENDING WITH FIRST APPELATE AUTHORITY, DELHI Sales Tax 2.33 2008-09

Joint Commissioner of sales Tax (Maharashtra) Sales Tax 421.12 1990-91 to 2004-05

Maharashtra Sales Tax Tribunal Sales Tax 14.02 1992-93 to 2000-01

Total 439.09

Service Tax

FORUM Nature of Dues Amount (Rs.in Crore) Year

CESTAT Service Tax 7.29 2005-06 & 2006-08

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

(xi) Based on our audit procedure and the information and explanations given by the management, the company has not defaulted in repayment of dues to any Financial Institution or Banks or Debenture holders.

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

(xiii) In our Opinion, the Company is not a Chit Fund company or a Nidhi/Mutual benefit fund/society. Therefore, the provisions of clause(xiii) of paragraph 4 of the order are not applicable to the Company.

(xiv) The Company is not dealing in or trading in securities, debentures and other investments and therefore clause regarding maintaining of proper records of transactions in respect of trading and timely entries is not applicable. All shares have been held by the company in its own name.

(xv) In our opinion and according to the information and explanations given to us, the Company has not given any guarantees for loans taken by others from banks or Financial Institutions.

(xvi) The Company has not raised any term loans during the year. Hence clause (xvi) of paragraph 4 of the order not applicable.

(xvii) 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.

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

(xix) The Company has not issued any debentures during the year. Hence clause (xix) of paragraph 4 of the order not applicable.

(xx) The Company has not raised any money by way of public issue during the Year.

(xxi) Based upon the audit procedures performed and the information and explanations given by the management, we report that no material fraud on or by the company has been noticed or reported during the course of our audit.

For Chandiok & Guliani

Chartered Accountants

FRN: 001199N

Sd/-

(V.K. Lalla)

Place : New Delhi Partner

Date : 30th May, 2013 Membership No. 080847

Mar 31, 2012

1 We have audited the attached Balance Sheet of THE STATE TRADING CORPORATION OF INDIA LIMITED as at 31st March, 2012, the Statement of Profit and Loss and the Cash Flow Statement for the year ended on that date, annexed thereto in which are incorporated the accounts of the corporate office audited by us and the accounts of 7 independent branches audited by the other Auditors. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with 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 misstatements. 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 Companies (Auditors' Report) (Amendment) Order, 2004 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 hereto, a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure to in paragraph 3 above, we report as follows:

a) Reference is invited to note no.18.2, relating to contracts of scraps, where transactions of purchases and sales and recoveries had not taken place in terms of contracts on behalf of Metro Machinery Traders, New Delhi (the business associates). The company has alleged fraud by the business associates and matter has been referred to CBI. It was informed that two ex-Directors and a General Manager have been charge sheeted by the Vigilance Department and files are in the custody of Ministry/Corporation which are of confidential in nature. Thus, in absence of details of the charge sheets and the inquiries, we are unable to opine if there was a fraud or a suspected management fraud and comment on any misstatements made in these accounts in respect of the above transactions. Pending out come of legal steps initiated for recovery/CBI probe, full provision of Rs.87.39 Crore was made in earlier year. However, the company is successful in getting Arbitration Award of Rs.110.00 Crore in its favour along with 12% interest per annum from 1st May 2006 till realization of award.

b) Reference is invited to note no.18.3, relating to Wheat transactions undertaken on behalf of Business associates, disposal of goods and recovery had not taken place as per contract due to quality problems and there was stock of wheat and unrecovered amounts outstanding from the business associates and suppliers. Also case of theft and misappropriation of uplifted stocks exported to Bangladesh have come to notice for which legal action has been initiated. Entire dues including recoverable from FCI aggregating to Rs.58.41 Crore has been provided/written off. Further as the matter is not yet resolved, additional amount of Central Sales tax liability for non -export of 30392.010 MT of wheat procured from FCI is not ascertainable. The impact on profit & loss account thus is not known.

c) Reference is invited to note no.19.4, amounting to Rs.3.20 Crore recoverable from one of the associates towards import of pet bottle material, which are pledged with the Company. Though the company is confident of full recovery and no provision has been considered necessary, final disposal of pledged stocks may have financial impact which can not be ascertainable at this stage.

d) Reference is invited to note no.22.2, relating to Rs.121.99 Crore due from Jhagadia Copper Limited, the Company under liquidation and in the process of reconstruction by Asset Reconstruction Company (India) Limited. Financial impact of the same cannot be ascertained at this stage.

e) Reference is invited to note no. 22.3 & 24.3, relating to Sundry Debtor of Rs.1300.15 Crore due from Global Steel Philipines Inc. who have stopped operation of their plant due to extreme volatility of prices and loan and advances of Rs.174.35 Crore from Ispat Industries Limited. The liability in respect of balance amount paybale by Ispat Industries Limited to STC has been taken over by Global Steel Holding Limited. Accordingly the amount recoverable was included in Conciliation Agreement signed by GSHL/GSPI with STC. Consequent upon Conciliation Award dated 15.11.2011 and further settlement agreement dated 17.05.2012 the entire dues are payable to STC by 10.11.2012. Pending final realization, impact on Financial Statements can not be ascertained at this stage.

f) Reference is invited to note no.22.4, relating to unsecured overdue of Rs.395.49 Crore against export affected under the EXIM bank Insurance linked post shipment credit facility, company is confident of full recovery of amount due to them. However a provision of Rs.38.45 Crore being amount paid to EXIM Bank during the year and not supported with equivalent recoveries from the associates has been made during the year.

g) Reference is invited to note no.25.1, regarding claims recoverable amounting to Rs.158.93 Crore towards the imports of pulses under Government account since the year 2006-07 onwards. The claim for the same has been lodged with Government which is under active consideration of Government for re-imbursement of actual loss as informed by Ministry of Consumer Affairs. Final settlement of the claim may impact financial statements, which at this stage can not be ascertained.

h) Note No. 47 and 48 relating to pending reconciliation/ confirmation of balances in parties accounts and current liabilities and consequential adjustment that may arise on reconciliation.

5) We further 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 except for information pertaining to charges levied on two ex-Directors and a General Manager and details of inquiries in respect of transaction referred to in Para 4(a) above, and further except as otherwise stated in the report, and the record of the cases being handled by the vigilance department of the company and the accounting of the consequential financial effect thereof on the matters under its security in such cases.

b) In our opinion, proper books of accounts as required by law have been kept by the Company so far as appears from our examination of such books and proper returns adequate for the purpose of our audit have been received from the branches not audited by us. Reports of the Branch auditors and management replies to the observations of the Branch Auditors have been considered while preparing our report.

c) The Balance Sheet, Statement of Profit and Loss and Cash Flow Statement referred to in this report are in agreement with the books of accounts;

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;

e) In terms of Notification No. GSR 829(E) dated 21.10.2003 issued by the Department of the Company Affairs, Government of India , the provisions of Section 274(1)(g) of the Companies Act,1956, are not applicable to the Company.

f) In our opinion and to the best of our information and according to the explanations given to us, the said accounts, subject to our observations in Paragraph 4 (a) to (h) above, provisions and write offs in respect of which have been made in the accounts based on the existing and known circumstances as reported in the said paragraphs and read together with Significant Accounting Policies and Notes to the financial statements and other Notes, give the information required by the Companies Act, 1956, in the manner so required and also give a true and fair view in conformity with accounting principles generally accepted in India:

(a) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2012;

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

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

1. In respect of its fixed assets :

a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets except at Ahmedabad Branch where Fixed Asset Register was not updated.

b) The fixed assets were physically verified by the management during the year. We have been informed that no material discrepancies were noticed on such physical verification.

c) In our opinion, substantial part of the fixed assets has not been disposed off during the year and going concern status of the company is not affected.

2. In respect of its inventories:

a) As explained to us, verification of inventories undertaken by the company through surveyor from time to time. In respect of the goods in the custody of third parties, certificate is obtained from the Clearing & Handling Agents or the warehousing corporation or from the related parties. In our opinion, the verification of goods like coal, wheat, etc is not by actual weighment, but by actual receipt and dispatch without accounting for handling losses. In respect of stock of Wheat 1925.78 MTs at Kandla Port lying since the year 2004-05 as there was no confirmation of the Quality and quantity is available the value of the same is being taken as NIL.

b) In our Opinion, though the procedures for physical verification is in place and instruction & guidelines are issued from time to time for verification of stock/ inventories but the same is not being followed strictly for all materials which are handled by and are in custody of third parties.

c) The company is not maintaining any separate stock register. However, transaction-wise stock details are compiled for control over the stock and necessary details are obtained from the custodian of stock viz., Port Authorities, Warehouse or Business Associates. Discrepancies, wherever noticed on verification have been properly dealt with, except in case of stock of wheat at Kandla as mentioned in Para 2(a) above in our report.

3. In respect of Loans availed/granted:

(a) As informed, the Company has not granted any loans, secured or unsecured, from Companies, firms and other parties, covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, clauses (iii) (b), (iii) (c) and (iii) (d) of paragraph 4 of the order are not applicable to the company.

(e) As informed, the Company has not taken any loans, secured or unsecured from companies, firms or other Parties covered in register maintained under section 301 of the Companies Act, 1956. Accordingly, clauses (iii) (f), and (iii) (g) of paragraph 4 of the order are not applicable to the company.

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 with regard to purchases of inventory, fixed assets and also the sale of goods. Further on the basis of our examination and according to the information and explanation given to us, we have not observed any instance of continuous failure to correct major weaknesses in internal control procedures. However, internal control procedure regarding review, realization of advances and other claims and reconciliation of balances of sundry debtors and creditors require strengthening.

5. In respect of contracts/arrangements under Section 301 of the Companies Act, 1956:

(a) According to the information and explanations provided by the management, we are of the opinion that there are no particulars of contracts or arrangements that need to be entered in the register maintained under section 301 of the Companies Act, 1956.

(b) There was no transaction hence clause 5 (b) of paragraph 4 of the order is not applicable.

6. In our opinion and as per the explanation provided to us, the provisions of Section 58A & 58AA of the Companies Act, 1956 and the rules framed there under are not applicable, as the Company has not accepted any deposit from the public.

7. The internal audit is conducted by outside firms of Chartered Accountants and in our opinion is commensurate with the size and nature of its business.

8. As informed by the management, the Central Government has not prescribed maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 for any of its product of the company.

9. In respect of statutory dues:

(a) According to the records of the Company, undisputed statutory dues including provident fund, investor education and protection fund, Employee State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom duty, Excise duty, Cess and other statutory dues have been generally regularly deposited with the appropriate authorities. There were no undisputed amounts payables in respect of the aforesaid dues were outstanding as at March 31, 2012 for a period of over 6 Months from the date they became payable.

(b) Disputed Statutory dues are aggregating to Rs.16.01 Crore on account of Income Tax and Rs.441.21 Crore on account of Sales Tax. The details are as under: -

Income Tax:

Amount Period to which the Name of the Statute Nature of the Dues [in Rs. Crore] amount relates

DELHI HIGH COURT INCOME TAX 0.09 1981-82

DELHI HIGH COURT INCOME TAX 0.30 1983-84

ITAT, DELHI INCOME TAX 0.30 2001-02

CIT(A), NEW DELHI INCOME TAX 15.32 2009-10

Total 16.01

Amount Period to which the FORUM Nature of the Dues [in Rs. Crore) amount relates

MADRAS HIGH COURT Sales Tax 0.84 1974-75 to 1989-90

SALES TAX APPELLATE TRIBUNAL (Chennai Branch) Sales Tax 0.01 1987-88

MAHARASHTRA SALES TAX TRIBUNAL Sales Tax 14.02 1992-93 to 2000-01

JOINT COMMISIONER OF SALES TAX (Maharashtra) Sales Tax 423.24 1990-91 to 2004-05

PENDING IN TRIBUNAL(BST) (Kolkata) Sales Tax 0.02 1981-82

ODISHA HIGH COURT Central Sales Tax 0.07 1981-82

PENDING WITH SOD & BOARD (Kolkata) Sales Tax 0.01 1983-84

WEST BENGAL COMMERCIAL TAXES APPELLATE Sales Tax 0.07 1985-86

BST ORDER NOT YET RECEIVED (Kolkata) Sales Tax 0.01 1988-89

PENDING IN APPEAL 88-89 (Kolkata) Sales Tax 0.02 1988-89

PENDING WITH HIGH COURT Central Sales Tax 0.01 1993-94 to 1995-96 (Assam)

JOINT COMMISIONER Central Sales Tax 0.22 2003-04 (PENDING IN APPEAL TILL 27/06/2011) (West Bengal)

STO, consequent to set aside order Sales Tax 0.34 2007-08

PENDING WITH FIRST APPELATE AUTHORITY, DELHI Sales Tax 2.33 2008-09

Total 441.21

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

11. Based on our audit procedure and the information and explanations given by the management, the company has not defaulted in repayment of dues to any Financial Institution or Banks or Debenture holders.

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

13. In our Opinion, the Company is not a Chit Fund company or a Nidhi/Mutual benefit fund/society. Therefore, the provisions of clause 13 of paragraph 4 of the order are not applicable to the Company.

14. The company is not dealing in or trading in securities, debentures and other investments and therefore clause regarding of maintaining proper records of transactions in respect of trading and timely entries is not applicable. All shares have been held by the company in its own name.

15. In our opinion and according to the information and explanations given to us, the Company has not given any guarantees for loans taken by others from banks or Financial Institutions.

16. The Company has not raised any new term loans during the year.

17. 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 not made preferential allotment of shares during the year, to parties and companies covered in the register maintained under section 301 of the Companies Act 1956.

19. The Company has not issued any debentures during the year.

20. The Company has not raised any money by way of public issue during the Year.

21. Based upon the audit procedures performed and the information and explanations given by the management, we report that no material fraud on or by the company has been noticed or reported during the course of our audit except a case of theft/ misappropriation/ fraud of pledged stock of pulses amounting to Rs.36.01 Crore by one of its associates at one of the branch of STC and net dues from associates of Rs.33.67 Crore has been fully written - off during the year. (Refer Note No.22.5)

For Chandiok & Guliani

Chartered Accountants

FRN. No. 001199N

V.K. Lalla

Place: New Delhi (Partner)

Date: 30.05.2012 M. No. 080847

Mar 31, 2011

1) We have audited the attached Balance Sheet of THE STATE TRADING CORPORATION OF INDIA LIMITED as at 31st March, 2011, the Profit & Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto in which are incorporated the accounts of the corporate office audited by us and the accounts of branches audited by the other Auditors. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2) We conducted our audit in accordance with 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 from material mis-statements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

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

4) Further to our comments in the annexure to in paragraph 3 above, we report as follows

a) Reference is invited to Note No. 3(a) of Notes to Accounts, Schedule 23, relating to contracts of scrap, where transactions of purchases and sales and recoveries had not taken place in terms of contracts on behalf of Metro Machinery Traders, New Delhi (the Business Associate). The Company has alleged fraud by the Business Associate and the matter has been referred to CBI. We also understand that two ex-Directors and a General Manager have been charge-sheeted. However, in the absence of details of the charge-sheets and the inquiries, we are unable to opine if there was a fraud or suspected Management fraud and comment on any mis- statement made in these accounts in respect of the above transaction. Pending out come of legal steps initiated for recovery/ CBI probe, full provision of Rs. 8739 lacs was made in earlier years.

b) Reference is invited to Note No. 3(b) of Notes to Accounts, Schedule 23, relating to wheat transactions undertaken on behalf of Business Associate, disposal of goods and recovery had not taken place as per contract due to quality problems and there was stock of wheat and unrecovered amounts outstanding from the Business Associate and Supplier. Also, cases of theft and misappropriation of uplifted stocks exported to Bangladesh have come to notice for which legal actions have been initiated. Pending out come of legal steps initiated, entire dues including recoverable from FCI aggregating to Rs. 5841 lacs has been provided/written off in earlier years. Further as the matter is not yet resolved, additional amount of central sales tax liability for non-export of 30392.010 MT of wheat procured from FCI is not ascertainable. The impact on Profit & Loss Account thus is not known.

c) Reference is invited to Note No. 3(c) of Notes to Accounts, Schedule 23, relating to Rs. 12199 lacs dues from Jhagadia Copper Limited, the company under liquidation and in the process of reconstruction by Asset Reconstruction Company (India) Limited. Financial impact of the same cannot be ascertained at this stage.

d) References invited to Note No. 3(d) of Notes to Accounts, Schedule 23, relating to sundry debtor of Rs.113793 lacs due from Global Steel Philippines who have stopped operation of their plant due to extreme volatility of prices. Though the outstanding is secured by way of Pledge of stock and post dated cheques and the corporate guarantees of holding company, however, in view of non availability of detailed valuation of plant & machinery being considered for sale, financial impact on account cannot be ascertained at this stage.

e) Reference is invited to Note No. 3 (e) of Notes to Accounts, Schedule 23, regarding booking of claims of Rs. 8167 lacs on account of differential actual trading losses, pending financial approval from Ministry of Consumer Affairs.

f) Reference is invited to Note No. 3(g) of Notes to Accounts, Schedule 23, relating to unsecured overdue of Rs. 39717 lacs against exports effected under the Exim Bank Insurance linked Post shipment Credit facility.

g) Reference is invited to Note No. 3 (h) of Notes to Accounts, Schedule 23, regarding non provision of Sundry Debtors of Rs 494 lacs towards reimbursement of the loss in supply of PDS items during 2008-09 to M/s Gujarat State Civil supplies Government Of Gujarat.

h) Note No 3(j) and 6(a) of Notes to Accounts, Schedule 23, relating to pending reconciliations of personal accounts and consequential adjustments

i) Reference is invited to Note No. 4 of Notes to Accounts, Schedule 23, regarding non provision of diminution in value of investment in subsidiary company (STCL).

5) We further 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 except for information pertaining to charges levied on two ex-Directors and a General Manager and details of inquiries in respect of transaction referred to in Para 4 (a) above, and further except as otherwise stated in the report, and the record of the cases being handled by the vigilance department of the company and the accounting of the consequential financial effect thereof on the matters under its scrutiny in such cases.

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 such books and proper returns adequate for the purpose of our audit have been received from the Branches not audited by us. Reports of the Branch auditors have been considered while preparing our report.

c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement referred to in this report are in agreement with the books of account;

d) In our opinion, the Balance Sheet, Profit & Loss Account and Cash Flow Statement comply with the mandatory accounting standards referred to in Section 211 (3C) of the Companies Act, 1956.

e) In terms of Notification No. GSR 829(E) dated 21.10.2003 issued by the Department of Company Affairs, Government of India, the provisions of Section 274(1)(g) of the Companies Act, 1956 are not applicable to the Company.

f) In our opinion and to the best of our information and according to the explanations given to us, the said accounts, subject to our observations in paragraphs 4 (a) to (i) above, provisions and write offs in respect of which have been made in the accounts based on the existing and known circumstances as reported in the said paragraphs and read together with the Significant Accounting Policies and other Notes appearing in the Notes to the Accounts, give the information required by the Companies Act, 1956 in the manner so required and also give a true and fair view in conformity with the accounting principles generally accepted in India :

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

(ii) in the case of the Profit & Loss Account, of the profit 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.

(Annexure referred to in Paragraph 3 of our report of even date on the financial statements for the financial year ended 31st March, 2011 of the State Trading Corporation of India Ltd.)

1. In respect of its fixed assets :

a. The Company has maintained proper records showing full particulars including quantitative details and situations of its fixed assets except at Ahmadabad branch where Fixed Asset Register was not updated.

b. Physical verification of fixed assets has been conducted during the year. We are informed that no material discrepancies were noticed on such physical verification.

c. In our opinion, the Company has not disposed off substantial part of fixed assets during the year and the going concern status of the Company is not affected.

2. In respect of its inventories:

a. As explained to us, verification of inventories is undertaken by the Company through Surveyors from time to time. In respect of goods in the custody of third parties, certificate is obtained from the Clearing & Handling Agents or the Warehousing Corporation or from the related parties. In our opinion, the verification in case of goods like coal, wheat, etc is not by actual weighment, but by actual receipt and dispatch without accounting for handling losses. In respect of stock of wheat at Bangladesh, no confirmations of stock were available and the stocks of 26500 MT having aggregate cost of 1320 lacs had been written off (through reduction in valuation Rs. 951 lacs and through write off Rs. 369 lacs) in earlier years (during the financial year 2004-05 to 2006-07). In respect of stock of wheat 1925.78 MT at Kandla, as at 31.03.2011 there is no confirmation of the quantity and quality of stock available; hence the same has been valued at Rs. NIL.

b. In our opinion, though the procedures for physical verification is in place and instructions and guidelines are issued from time to time for verification of stock/inventories but the same is not being followed strictly for all materials which are handled by and are in custody of third parties.

c. The Company is not maintaining any separate Stock Register. However, transaction-wise stock details are compiled for control over the stock and necessary details are obtained from the custodians of stock viz., Port Authorities, Warehouse or Business Associates. Discrepancies, wherever noticed on verification have been properly dealt with, except in case of stock of wheat at Bangladesh and Kandla as mentioned in Para 2(a) above in our report.

3. In respect of loans availed/granted:

a. As informed, the company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly, clauses (iii) (b) (c) and (d) of Paragraph 4 of the Order are not applicable to the Company.

b. As informed, 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, clauses (iii) (f) and (g) of the Paragraph 4 of the Order are not applicable to the Company.

4. In our opinion and according to the information and explanation given to us, there are adequate internal control procedures commensurate with the size of the company and the nature of the business with regard to purchase of inventory, fixed assets and also for sale of goods. Further, on the basis of our examination and according to the information and explanations given to us, we have not observed any instance of continuous failure to correct major weaknesses in the internal control procedures. However, internal control procedures regarding review, realization of advances and other claims and reconciliation of balance of sundry debtors and creditors require strengthening.

5. In respect of contracts/arrangements under Section 301 of the Companies Act, 1956:

a. According to the information and explanations provided by the management, we are of the opinion that there are no particulars of contracts or arrangements that need to be entered into the register maintained under Section 301 of the Companies Act, 1956.

b. There was no transaction hence clause (v) (b) of Paragraph 4 of the Order is not applicable.

6. In our opinion and as per the information and explanation provided to us, the provisions of Section 58A and 58AA of the Companies Act, 1956 and the rules framed there under are not applicable, as the company has not accepted any deposits from the public.

7. The internal audit is conducted by the outside firms of Chartered Accountants and in our opinion is commensurate with the size and nature of its business.

8. As informed by the management, the Central Government has not prescribed maintenance of cost records under Section 209(1)(d) of the Companies Act,1956 for any of the products of the company.

9. In respect of statutory dues:

a. According to the records of the Company, undisputed statutory dues including Provident Fund, Investors Education and Protection Fund, Employees State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other Statutory Dues have been generally regularly deposited with the appropriate authorities. There were no undisputed amounts outstanding over six months from the date they became payable.

b. Disputed Statutory dues are aggregating to Rs. 70492.87 lacs on account of sales tax and Rs. 2,000.13 lacs on account of income tax. The details are as under:

SALES TAX :

FORUM PERIOD NATURE OF AMOUNT DISPUTE (Rs. In Lacs)

MADRAS HIGH COURT 87 - 88 SALES TAX 0.01

MADRAS HIGH COURT 89-90 SALES TAX 0.28

MADRAS HIGH COURT 91-92 SALES TAX 0.01

MADRAS HIGH COURT 74-75 SALES TAX 7.72

MADRAS HIGH COURT 75-76 SALES TAX 2.12

MADRAS HIGH COURT 86-87 SALES TAX 47.60

MADRAS HIGH COURT 86-87 SALES TAX 25.36

MADRAS HIGH COURT 87-88 SALES TAX 0.01

SALESTAX APPELLATE TRIBUNAL 87-88 SALES TAX 0.70

MADRAS HIGH COURT 74-75/75-76 SALES TAX 1.20

MAHARASHTRA TRIBUNAL PENDING 90-91 SALES TAX 4.35

MAHARASHTRA TRIBUNAL PENDING 92-93 SALES TAX 72.24

MAHARASHTRA TRIBUNAL PENDING 96-97 SALES TAX 1.93

MAHARASHTRA TRIBUNAL PENDING 2000-01 SALES TAX 1327.54

JOINT COMMISIONER 93-94 SALES TAX 9.25

JOINT COMMISIONER 2003-04 SALES TAX 3160.01

JOINT COMMISIONER 2004-05 SALES TAX 38931.85

JOINT COMMISIONER 2002-03 SALES TAX 6.76

MP APPELLATE BOARD 93-94 SALES TAX 1.01

MP APPELLATE BOARD 95-96 SALES TAX 0.38

PENDING IN TRIBUNAL (BST) 81-82 SALES TAX 1.54

ORISSA HIGH COURT 81-82 SALES TAX 7.21

PENDING WITH SOD & BOARD 83-84 SALES TAX 0.77

WEST BENGAL COMMERCIAL TAX APPPELLATE 85-86 SALES TAX 6.77

CASE DECIDED AGAINST US 88-89 SALES TAX 0.37

PENDING IN APPEAL 88-89 SALES TAX 1.25

PENDING IN APPEAL 88-89 SALES TAX 0.30

PENDING WITH HIGH COURT 93-94 SALES TAX 0.15

PENDING WITH HIGH COURT 94-95 SALES TAX 0.62

PENDING WITH HIGH COURT 95-96 SALES TAX 0.69

JOINT COMMISIONER (PENDING IN APPEAL TILL 22/07/2011 2003-04 SALES TAX 22.84

PENDING WITH FIRST APPELATE AUTHORITY 2006-07 SALES TAX 26817.27

PENDING WITH FIRST APPELATE AUTHORITY 2007-08 SALES TAX 32.89

70493.00

INCOME TAX :

Forum where dispute Nature Rs. In Lacs

Income Tax Appellate Tribunal, Delhi Income Tax 444.47

High Court Income Tax 22.44

CIT (A) Income Tax 1499.64

Income Tax Authority Income Tax 33.58

Total 2000.13

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

11. Based on our audit procedures and the information and explanations given by the management, the company has not defaulted in payment of dues to any financial institution or bank or debenture holders.

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

13. In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause (xiii) of Paragraph 4 of the Order are not applicable to the Company.

14. The Company is not dealing or trading in securities, debentures and other investments and therefore question of maintaining proper records of transactions and contracts in respect of trading and timely entries do no arise. All shares have been held by the Company in its own name.

15. According to the information and explanations given to us, the company has not given any guarantee for loans taken by others from bank or financial institutions.

16. The Company has not raised any term loans during the year.

17. According to the 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 not made any preferential allotment of shares during the year to parties and companies covered in the Register maintained under Section 301 of the Companies Act, 1956.

19. The Company has not issued any debentures during the year.

20. The Company has not raised any money by way of public issue during the year.

21. During the course of our examination of books and records of the Company, carried out in accordance with the generally accepted auditing practices in India and according to the information and explanations given to us, we have neither come across any instance of material fraud on/ or by the Company noticed or reported during the year, nor we have informed for such case by the Management.

For Chandiok & Guliani

Chartered Accountants

Firm Registration No. 001199N

sd/- Date : 24.06.2011 (V.K. Lalla) Place: New Delhi Partner

Membership No.080847

Mar 31, 2010

1) We have audited the attached Balance Sheet of THE STATE TRADING CORPORATION OF INDIA LIMITED as at 31st March, 2010, the Profit & Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto in which are incorporated the accounts of the corporate office audited by us and the accounts of branches audited by the other Auditors. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2) We conducted our audit in accordance with 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 from material mis-statements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3) As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the Annexure hereto, a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4) Further to our comments in the annexure to in paragraph 3 above. We report as follows:

a) Reference is invited to Note No. 3(a) relating to contracts of scrap, where transactions of purchases and sales and recoveries had not taken place in terms of contracts on behalf of Metro Machinery Traders, New Delhi (the Business Associate). The Company has alleged fraud by the Business Associate and the matter has been referred to CBI. We also understand that two ex-Directors and a General Manager have been charge-sheeted. However, in the absence of details of the charge-sheets and the inquiries, we are unable to opine if there is a fraud or suspected Management fraud and comment on any mis-statement made in these accounts in respect of the above transaction. Pending out come of legal steps initiated for recovery/ CBI probe, full provision of Rs. 8743 lacs was made in earlier years.

b) Reference is invited to Note no. 3(b) relating to wheat transactions undertaken on behalf of Priyanka Overseas Private Limited, New Delhi (the Business Associate), disposal of goods and recovery had not taken place as per contract due to quality problems and there were undisposed stocks of wheat and unrecovered amounts outstanding from the Business Associate and Supplier. Also, cases of theft and misappropriation of unlifted stocks exported to Bangladesh have come to notice for which legal actions have been initiated. Guarantee of Rs 250 lacs has been invoked; post dated cheques of Rs. 2000 lacs were presented to the bank which was dishonored stating "insufficient funds". A criminal complaint under Section 138 of the Negotiable Instrument Act against the Business Associate and its directors has been filed. The company has also initiated arbitration/legal proceedings against the Business Associate for recovery of dues. Pending out come of legal steps initiated, entire dues including recoverable from FCI aggregating to Rs. 5841 lacs has been provided/written off in earlier years.

c) Reference is invited to Note no. 3(c) relating to additional liability that may arise on account of price differential considering the sale as inter-state sale at Open market Sales Scheme (Domestic) for Wheat, instead of the concessional prices charged for exports . Additional amount of central sales tax liability for non-export of 30392.010 MT of wheat procured from FCI is not ascertainable. The impact on Profit & Loss Account is not known.

d) Note no. 3(e) and 5(a) relating to pending reconciliations of personal accounts and consequential adjustments.

e) Reference is invited to Note no. 3(g) relating to Rs. 17641 lacs dues from Jhagadia Copper Limited, the company under liquidation and in the process of reconstruction by Asset Reconstruction Company (India) Limited.

f) Reference is invited to Note no. 3(l) relating to unsecured overdue of Rs. 39761 lacs against exports effected under the Exim Bank Insurance linked Post shipment Credit facility.

5) We further 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 except for information pertaining to charges levied on two ex-Directors and a General Manager and details of inquiries in respect of transaction referred to in para 4 (a) above, and further except as otherwise sated in the report, and the record of the cases being handled by the vigilance department of the company and the accounting of the consequential financial effect thereof on the matters under its scrutiny in such cases.

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 such books and proper returns adequate for the purpose of our audit have been received from the Branches not audited by us. Reports of the Branch auditors have been considered while preparing our report.

c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement referred to in this report are in agreement with the books of account;

d) In our opinion, the Balance Sheet, Profit & Loss Account and Cash Flow Statement comply with the mandatory accounting standards referred to in Section 211 (3C) of the Companies Act, 1956.

e) In terms of Notification No. GSR 829(E) dated 21.10.2003 issued by the Department of Company Affairs, Government of India, the provisions of Section 274(1)(g) of the Companies Act, 1956 are not applicable to the Company.

f) In our opinion and to the best of our information and according to the explanations given to us, the said accounts, subject to our observations in paragraphs 4 (a) to (f) above, provisions and write offs in respect of which have been made in the accounts based on the existent and known circumstances as reported in the said paragraphs and read together with the Significant Accounting Policies and other Notes appearing in the Notes to the Accounts, give the information required by the Companies Act, 1956 in the manner so required and also give a true and fair view in conformity with the accounting principles generally accepted in India.

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

(ii) in the case of the Profit & Loss Account, of the profit 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.

ANNEXURE TO AUDITORS REPORT

(Annexure referred to in Paragraph 3 of our report of even date on the financial statements for the financial year ended 31st March, 2010 of the State Trading Corporation of India Ltd.)

1. In respect of its fixed assets :

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

b. Physical verification of fixed assets has been conducted during the year. We are informed that no material discrepancies were noticed on such physical verification.

c. In our opinion, the Company has not disposed off substantial part of fixed assets during the year and the going concern status of the Company is not affected.

2. In respect of its inventories:

a. As explained to us, verification of inventories is undertaken by the Company through Surveyors from time to time. In respect of goods in the custody of third parties, certificate is obtained from the Clearing & Handling Agents or the Warehousing Corporation or from the related parties. In our opinion, the verification in case of goods like coal, wheat, etc is not by actual weighment, but by actual receipt and dispatch without accounting for handling losses. In respect of stock of wheat at Bangladesh, no confirmations of stock were available and the stocks of 26500 MT having aggregate cost of 1320 lacs had been written off (through reduction in valuation Rs. 951 lacs and through write off Rs. 369 lacs) in earlier years (during the financial year 2004-05 to 2006-07). In respect of stock of wheat 1925.78 MT at Kandla, as at 31.03.2010 there is no confirmation of the quantity and quality of stock available; hence the same has been valued at Rs. NIL.

b. In our opinion, the procedures of physical verification are not reasonable and adequate in relation to the size of the Company and nature of its business. In our opinion, the Management has not laid down proper guidelines with regard to the periodicity and procedure for verification so as to strengthen its control over the materials, which are handled by and are in the custody of third parties.

c. The Company is not maintaining any separate Stock Register. However, transaction-wise stock details are compiled for control over the stock and necessary details are obtained from the custodians of stock viz., Port Authorities, Warehouse or Business Associates. Discrepancies, wherever noticed on verification have been properly dealt with, except in case of stock of wheat at Bangladesh and Kandla.

3. In respect of loans availed/granted:

a. As informed, the company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly, clauses 4 (iii) (b) (c) and (d) of the Order are not applicable to the Company.

b. As informed, 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, clauses 4 (iii) (f) and (g) of the Order are not applicable to the Company.

4. In view of the irregularities noticed and reported in paragraph 4 of our main report, we report that the internal control system for the purchase of inventory and sale needs to be considerably strengthened considering the size and nature of its business. However, no recurrence of defaults of similar nature has come to our notice in the course of our audit. However, internal controls systems are adequate in relation to purchase of fixed assets.

5. In respect of contracts/arrangements under Section 301 of the Companies Act, 1956:

a. According to the information and explanations provided by the management, we are of the opinion that there are no particulars of contracts or arrangements that need to be entered into the register maintained under Section 301 of the Companies Act, 1956.

b. There was no transaction hence clause 4 (v) (b) of the Order is not applicable.

6. In our opinion and as per the information and explanation provided to us, the provisions of Section 58A and 58AA of the Companies Act, 1956 and the rules framed there under are not applicable, as the company has not accepted any deposits from the public.

7. In our opinion, the internal audit system needs enlargement and strengthening in scope in view of the observations contained in paragraph 4 of our main Report.

8. As informed by the management, the Central Government has not prescribed maintenance of cost records under Section 209(1)(d) of the Companies Act,1956 for any of the products of the company.

9. In respect of statutory dues:

a. According to the records of the Company, undisputed statutory dues including Provident Fund, Investors Education and Protection Fund, Employees State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other Statutory Dues have been generally regularly deposited with the appropriate authorities. There were no undisputed amounts outstanding over six months from the date they became payable.

b. Disputed Statutory dues are aggregating to Rs. 42,995.73 lacs on account of sales tax and Rs. 483.34 lacs on account of income tax. The details are as under:

Forum where dispute Nature Rs. in Lacs

Sale Tax Tribunal, Patna Sales Tax 1.53

Orissa High Court Sales Tax 7.21

West Bengal Sales Tax (Settlement of Dispute) Act, 1999 Sales Tax 0.77

Commercial Taxes Appellate Board, West Bengal Sales Tax 67.41

Sale Tax Tribunal, West Bengal Sales Tax 0.37

Sales Tax Appellate Authority, Orissa Sales Tax 1.23

Commercial Taxes Board, West Bengal Sales Tax 0.30

Commercial Taxes Board, West Bengal Sales Tax 1.79

Assam High Court Sales Tax 0.14

Assam High Court Sales Tax 0.61

Assam High Court Sales Tax 0.68

Additional Commissioner of Sales Tax, West Bengal Sales Tax 22.83

Appellate Authority - VAT, West Bengal Sales Tax 204.64

Appellate Authority - CST, West Bengal Sales Tax 3795.39

Joint Commissioner (Appeal), Mumbai Sales Tax 221.85

Sales Tax Tribunal, Mumbai Sales Tax 1406.03

Assessing Officer - BST, Mumbai Sales Tax 43.54

Assessing Officer - CST, Mumbai Sales Tax 37,126.44

MP Appellate Board, Bhopal Sales Tax 1.01

Assessing Officer (MPCT) - Reassessment, Bhopal Sales Tax 0.39

Sales Tax Appellate Tribunal (CST - Tax & Penalty) Sales Tax 0.70

Madras High Court Penalty (TNGST) Sales Tax 0.39

Madras High Court (TNGST) Sales Tax 90.48

Income Tax Appellate Tribunal, Delhi Income Tax 483.34

TOTAL 43,479.07

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

11. Based on our audit procedures and the information and explanations given by the management, the company has not defaulted in payment of dues to any financial institution or bank or debenture holders.

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

13. In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the Order are not applicable to the Company.

14. The Company is not dealing or trading in securities, debentures and other investments and therefore question of maintaining proper records of transactions and contracts in respect of trading and timely entries do no arise. All shares have been held by the Company in its own name.

15. According to the information and explanations given to us, the company has not given any guarantee for loans taken by others from bank or financial institutions.

16. The Company has not raised any term loans during the year.

17. According to the 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 not made any preferential allotment of shares during the year to parties and companies covered in the Register maintained under Section 301 of the Companies Act, 1956.

19. The Company has not issued any debentures during the year.

20. The Company has not raised any money by way of public issue during the year.

21. a. According to the information and explanations given to us, the Company has filed criminal complaints against certain parties for instigating the Company into participating in a transaction for sale of scrap from a dismantled plant based on a Valuation Report which showed much higher quantity and saleable value of scrap. {Refer note no. 4(a)} The matter has been referred to the CBI. In the said case, Charge Sheets have also been filed against two ex-Directors and a General Manager. However, in the absence of details of the charges levied, we are unable to comment if there is any mis-statement in the financial statements in respect of the said transaction. {refer para 4(a) of the Audit Report}

b. In respect of 26,500 MT of Wheat lying at Bangladesh against a cancelled export contract, misappropriation of 8,000 MT by the buyers/ clearing and handling agent without paying for the stock was alleged by the Company and criminal complaints were filed in the financial year 2006-07 and the stolen stocks written off in the books. The status of the said case is not known. Status of the balance stock of 18,500 MT at Bangladesh is also not known and the stocks have been written off in the books in the financial year 2006-07. In the absence of details of the actual appropriation of stocks, we are unable to express an opinion on any mis-statement in these financial statements on the above account. {refer para 4(b) of the Audit Report}

For KAPOOR TANDON & CO., Chartered Accountants

Sd/- (Rajesh Parasramka) Partner M. No. 074192 Firm Registration No. 000952C

Place : New Delhi

Dated : 23.07.2010

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