Auditor Report of Ispat Profiles India Ltd.

Jun 30, 2010

We have audited the attached Balance Sheet of ISPAT PROFILES INDIA LIMITED as at 30th June 2010 and also the Profit & Loss Account and the Cash Flow Statement for the period ended on that date annexed thereto. These Financial Statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

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

Further to our comments in the Annexure referred above, we report that:-

The net worth of the Company continues to be fully eroded, and the production process has been suspended since 22nd October, 2000. The Company has received notices, under Secuhtisation and Reconstruction of financial assets and enforcement of security interest Act 2002, from some of the secured lenders in 2003, and from ARCIL in 2010 which the Company has replied. The going concern concept will hold good depending upon the receipt of required support from its Bankers, Financial Institutions, Promoters and others. Necessary adjustment may have to be made to the value of Assets and Liabilities in case the going concern concept is vitiated.

ii. Note No. 2 (f) of Schedule No. 18(B) regarding non-provision of interest on loans from Bodies Corporate amounting to Rs. 15130 Crores including Rs. 18.52 Crores for the period resulting in toss for the period and liability being understated by the said amounts.

iii. Note No.8 (c) & (d) of ScheduleNo. 18(B) regarding non-provision of Interest on loans /Debentures from Financial Institutions, Banks, Maharashtra State Electricity Distribution Company Limited and others amounting to Rs. 1479.31 Crores including Rs.502.95 Crores for the period as per reasons mentioned in the note, resulting in Loss for the period and liability being understated by the said amounts.

iv. Note No. 10 of Schedule No. 18(B) regarding non-provision for Salary, wages & Bonus etc. tor the lockout period for the reason as stated in the note, which is subjudice.

v. Note No. 8 (b) of Schedule No. 18(B) regarding non-receipt of confirmation and statement of accounts from secured lenders and the impact on Loss, H any, of the same on reconciliation thereof. .

vi. Note No. 24 regarding non-calculation of test for impairment of assets under Accounting Standard 28 for the reason as stated at the note.

vii. Confirmation for loans, advances, deposits, debtors and creditors have not been received therefore the same have been shown as per books of accounts. We are unable to comment on the readability /adjustment of the same. Had the observations made by us in paragraph (ii) and (iii) above been Considered the loss for the period would have been Rs. 579.50 Crores against the reported figure of Rs. 58.03 Crores and carried forward loss would have been Rs. 2479.87 Crores as against reported figure of Rs. 849.26 Crores.

Subject to above we report that-

1. 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 as mentioned above.

2. In our opinion proper books of account as required by the Companies Act, 1956 (as amended) have been kept by the Company so far, as appears from our examination of those books except for what has been stated in para (ii), (iii), (iv) and (vi) above.

3. The Balance Sheet, Profit & Loss Account and the Cash Flow statement are in agreement with the books of account.

4. In our opinion the Balance Sheet, the Profit & Loss Account and the Cash Flow Statement dealt by this report comply with the Accounting Standards referred to Sub-Section (3C) of Section 211 of the Companies Act, 1956 except as stated in Para (ii), (iii), (iv) and (vi) above.

5. As the company has defaulted in redeeming its debentures on due date and. such failure is still continuing, we report that all the directors of the company excluding institutional nominee & Special director (BIFR) on the Board are disqualified under clause (g) of sub- section (1) of section 274 of the Companies Act, 1956.

6. In our opinion and to the best of our information and according to the explanations given to us the said accounts read with the Notes and Accounting Policies appearing on Schedule 18, give the information required by the Companies Act, 1956 (as amended) 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 30th June, 2010;

b. In the case of the Profit & Loss Account, of the Loss of the Company for the 18 months period ended on that date, subject to the effect of the above notes, and;

c. In the case of the Cash Row Statement, of the cash flows for the 18 months period ended on that date.

ANNEXURE TO THE AUDITORS REPORT

(i) (a) The Fixed Assets register had been maintained by the Company till the plant was in operation i.e. October 2000.

(b) Fixed Assets have not been physically verified since October 2000 by the managerhent as the companys plant is under lockout. Hence we are unable to comment on discrepancies, if any, that may arise between physical and book balance.

(c) No fixed assets have been disposed off during the period.

(ii) (a) Stock of finished goods, stores, spare parts and raw materials have not been physically verified since October 2000 by the management as the companys plant is under lockout.

(b) As physical verification of inventory has not been conducted since October 2000, the clause for adequacy and reasonableness for the same is not applicable.

(c) The Company had maintained proper records of inventory till the last dispatches. However as stated there are no transaction during the last Six years. In the absence of physical verification we are unable to comment on discrepancy (if any) between books stock and physical stock.

(iii) As informed to us, the Company has neither granted nor taken any Loans, Secured or Unsecured to / from Companies, Firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly, clauses 4(iii) (b) to (g) of the Order are not applicable.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal controls.

(v) According to the information and explanations provided by the management there has been no transaction that needs to be entered into a register maintained under Section 301 of the Companies Act, 1956. Accordingly, clauses 4(v) (b) of the Order is not applicable.

(vi) The Company has not accepted any deposits from public during the period within the purview of Section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed thereunder.

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

(viii) As informed, the Central Government has prescribed the maintenance of cost records under Section 209(1 )(d) of the Companies Act, 1956 for the products manufactured by the Company. As the Company is under lockout, no production activity has been carried out during the period under review, hence, maintenance of such records is not relevant.

(ix) (a) According to the information and explanations given to us and on the basis of our examination of the books of account, the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, income tax, wealth tax, service tax, custom duty, excise duty, cess and any other statutory dues except sales tax deferment amounting to Rs. 19.17 Crores outstanding for a period of more than six months from the date they became payable with the appropriate authorities. As per explanation given to us the provisions of Employees State Insurance Act is not applicable to the Company.

(b) According to the information and explanations given to us, the dues outstanding of sales tax, income tax, custom duty, service tax, excise duty, wealth tax, cess on account of dispute are as follows:-



Nature of Statue Nature of Dues Amount Forum where Dispute is (Rs.inCrore) pending

1. Central Excise Excise duty on fabrication of 1.54 CESTAT Mumbai factory shed

Custom duty/Int erest/Penalty 0.04 CESTAT Ahmedabad

on Scrap

Reversal of Cen vat on Capital 3.47 High Court, Mumbai goods

Total 5.05

2. Service Tax Act Service tax pa yable on Transport 0.24 Addl. Commissioner, Pune

Total 0.24

3. FEMA Penalty for non receipt of Bill 0.20 Calcutta High Court, of entry Calcutta

Total 0.20

4. Maharas htra Sales Sales Tax payable on stock held 0.94 MST Tribunal, Mumbai Tax Act At the commencem ent of the scheme

Purchase tax set off 0.18 MST Tribunal, Mumbai

Sales Tax on Disposal of Scrap 0.14 Commissioner/MST Tribunal, Mumbai

Branch Sales Tax Payable 0.03 MST Tribunal, Mumbai

Sales Tax deferment on Account 2.35 Commissioner/MST

of difference in computation Tribunal, Mumbai

Total 3.64

Grand Total 9.13



(x) The Companys accumulated losses at the end of the financial year are more than fifty percent of its net worth and the Company has incurred cash losses during the current financial year as well as in the immediately preceding financial year.

(xi) Based on our Audit procedure and as per the information and explanations given by the management the Company has defaulted in repayment of following dues to financial institutions (debenture holders) and banks.



Parties Period of Default Amount (Rs. In Crore)

Financial Institutions For more than 10 years 1289.71

Banks For more than 10 years 543.70

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

(xiii) The Company is not a chit fund or a nidhi / mutual benefit fund / society. (xiv) The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly the provisions of clause 4(xiv) of the Order are not applicable.

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

(xvi) Based on the information and explanations given to us by the management, no term loans were obtained by the Company during the period.

(xvii) On the basis of our examination of Cash Flow Statement on an overall basis, the funds raised on short-term basis have not been used for long-term investment.

(xviii) During the period under audit the Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956.

(xix) As per the information and explanations given to us, the company had already created securities and charge in respect of Debentures outstanding during the period.

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

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

For SINGHI & CO.

Chartered Accountants

Firms Registration No. 302049E

M.L.SHUKLA

Partner

Membership No. 031505

1-B, Old Post Office Street,

Kolkata-700 001

Dated: the 30th day of September, 2010.