Auditor Report of J F Laboratories Ltd.

Mar 31, 2010

We have audited the attached Balance Sheet of J. F. LABORATORIES LIMITED as at March 31, 2010. The Companys project has not carried out any revenue operations during the period from April 1, 2009 to March 31, 2010 and has, therefore, not prepared a Profit and Loss Account for the period ended on that date. These financial statements are the responsibility of the Companys management. Our responsibility is to express the opinion on these financial statements based on our audit.

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

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

2. We draw attention to Note 1 and 2, Schedule 9 in the financial statements regarding substantial delay in setting up the project pending commissioning of plant for commercial production, non resolution of problems regarding stabilisation of the process technology for a prolonged period of time, project activities being suspended since long during recovery proceedings, defaults in repayment of debts, recalling of debts, recovery proceedings initiated by the Banks/ Institutions/ Debenture Trustees, outcome of the recovery proceedings and ex-post facto auction sale of the Project Undertaking of the Company as set out in Note 5(d) to 5(f) of Schedule 9, the presumption of going concern is irretrievably jeopardized. Inasmuch as the Companys substratum is adversely affected, for matters in respect of its corporate status need to be addressed vis a vis the members and other project participants, the accounts are prepared on the balance sheet date on historical cost convention without any presumption of a going concern and adhere to the accounting requirements of the ICAI relating to the Impairment of Assets and recognizes any exceptional losses for the said event - refer Note 1, 2 and 5

3. We also draw attention to Note 5(b) regarding non-provision of any interest on debentures due to the modification of the terms thereof and Debenture Trustees have filed suit for recovery of the Debenture dues including interest, and Note 5 (d) regarding provision of the liability as per the claims/orders made to/by the Honbie Debt Recovery Tribunal, Mumbai though no provision has been made for further Interest thereon.

4. We also draw attention to Note 7 regarding attachment of the one of the bank account by the Income Tax Department towards demand and Note No. 9 regarding balances of various accounts subject to confirmation and reconciliation.

5. Further to our comments in the Annexure referred to in paragraph 1 and paragraph 2 to 4 above, we report that-.

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

(b) In our opinion, the Company as required by law has kept proper books of account so far as it appears from our examination of such books.

(c) The Balance Sheet referred to in this Report is in agreement with the books of account.

(d) In our opinion and to the best of our information and according to the explanations given to us and except as stated in Para 2 to 4 above, the Balance Sheet complies with the accounting standards issued by the Institute of Chartered Accountants of India as referred to in Section 211 (3C) of the Companies Act, 1956.

(e) On the basis of written representation received from the Directors, and taken on record by the Board of Directors, none of the Directors is disqualified as on 31s1 March, 2010 from being appointed as a Director in terms of Clause (g) of sub-section 1 of Section 274 of the Companies Act, 1956.

(f) In our opinion, and to the best of our information and according to the explanations given to us, the Balance Sheet read with Annexure referred to in paragraph 1 and paragraph 2 to 4 above regarding accounts are prepared on the balance sheet date on historical cost convention without any presumption of a going concern, non provision of interests on borrowings and debentures, auction sale of the Project Undertaking of the Company in view of the DRT Order and read together with the note thereon, gives the information required by the Companies Act, 1956 in the manner so required and also give a true and fair view subject to above, in accordance with generally accepted accounting principles of the state of affairs of the Company as at 31st March, 2010.

ANNEXURE REFERRED TO IN PARA (1) OF THE REPORT OF EVEN DATE OF THE AUDITORS TO THE MEMBERS OF J. F. LABORATORIES LIMITED ON THE ACCOUNTS FOR THE PERIOD FROM 1ST APRIL, 2009 TO 31ST March, 2010

1. a) The Company has not produced the records of Fixed Assets for our verification.

b) According to the information and explanations given to us, the Fixed Assets have not been physically verified by the management during the year, in view of the order of the Debt Recovery Tribunal, possession of the properties of the company has been taken by the Recovery Officer on 19.03.2004.

c) Based on the copies obtained during the year of the orders of the Mumbai Debts Recovery Tribunal I, in the Recovery Proceedings No. 343 of 2003 (OA 17 Of 2001) of the erstwhile Unit Trust of India that an auction for the Companys projects assets was held on 19" February, 2009 and the sale thereat has been confirmed and made absolute as on 30th March, 2009 for the entire asset base of the Project Undertaking of the Company. The proceeds thereof have also been appropriated by the Honble Recovery Tribunal to the Companys secured creditors, viz. SBI, IDBI, Kotak Mahindra Bank (ICICI) and IFCI against their dues and charges

2. The inventory has not been physically verified by the management; in view of the order of the Debt Recovery Tribunal possession of the inventory of the company has been taken by the Recovery Officer on 19.03.2004 and auctioned as mentioned above.

3. In respect to Loan taken and granted:

a) The company has taken loan from four number of companies covered in the register maintained under Section 301 of the Companies Act, 1956. The Amount of Rs. 11,08,000/- taken during the period and the period-end balance of loans taken from such parties was Rs. 8,81,47,395/-. The company has not granted any loans, secured or unsecured to the companies, firms and other parties covered in the register maintained under section 301 of the Companies Act, 1956.

b) In our opinion the rate of interest and other terms and conditions of loans taken by the company, secured or unsecured, are prima facie not prejudicial to the interest of the company.

c) As per the information and explanations given to us, the loans are in nature of interest free promoters advances towards subscription of shares in the company and accordingly the question of any repayment or interest thereon does not arise.

d) In our opinion and as per the information and explanations given to us there is no overdue amount for more than one lakh for any unsecured loans taken by 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 for the purchase of inventory and fixed assets.

5. a) As per the information and explanations given to us and on the basis of examination of relevant records, in our opinion transactions that need to be entered into a register in pursuance of Section 301 of the Act have been so entered;

b) As per the information and explanations given to us transactions of loans taken from companies covered in the register maintained under Section 301 of the Act, is non-interest bearing;

6. The Company has not accepted any fixed deposits from the public during the year and therefore the question of compliance with the directives issued by the Reserve Bank of India and the provision of Section 58A and 58AA of the Companies Act, 1956 and the rules framed there under does not arise.

7. In our opinion and according to the information and explanations given to us, the company has no formal Internal Audit System as such but its control procedures ensure reasonable internal checking of its financial and other records commensurate with its size and nature of its business;

8. Since the company has not yet started commercial production, question of maintenance of cost records prescribed by the Central Government under clause (d) of sub section (1) of Section 209 of the Act, if any, does not arise;

9. a) As per the information and explanations given to us, in our opinion the Company is regular in depositing undisputed statutory dues including Provident Fund, Employees State Insurance, Income Tax, Sales Tax, Wealth Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities except following items, which are outstanding for a period of more than six months from the date they became payable.:

(i) an amount of Rs. 2,40,972/- pertaining to unclaimed application money refundable on PCD to be transferred to Investor Education and Protection Fund; and

(ii) liability towards income tax and interest thereon as per assessment order and demand notice for earlier years of Rs. 68,34,874/- for which department has issued notice of attachment of bank account dated 28/01/2009

b) According to the information and Explanations given to us, there are no dues on account of sales tax, income tax, wealth tax, custom duty, excise duty, cess that has not been deposited on account of any dispute except as stated above.

10. Since the company has not yet started commercial production and has not prepared any Profit & Loss Account so far, question of accumulated losses and cash losses does not arise;

11. The company has defaulted in repayment of dues to financial institutions and banks. Having regard to the substantial delay in setting up the project, non-start of commercial production, recovery proceeding has been initiated by the Banks and Institutions. The entire outstanding amount of Rs. 61,30,24,497 and interest not provided as referred in note 5(d) of schedule 9 in the financial statements is considered to be in default since the dates of recalling or due;

12. The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities, hence the question of deficiency in maintenance of adequate documents and records does not arise;

13. Since the company is not dealing or trading in shares, securities, debentures and other investments the question of maintaining proper record etc. are not applicable;

14. As per the information and explanation given to us, the company has not given any guarantee for loans taken by others from banks or financial institutions;

15. The company has not obtained any term loan during the period;

16. As per the information and explanations given to us in our opinion, the funds raised on short term basis have not been used for long term investment and vice-versa;

17. The company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Act;

18. The company has not issued any debentures during the period;

19. The company has not raised money by public issues during the period;

20. As per the information and explanations given to us no fraud has been noticed or reported during the period;

21. The other clauses of the aforesaid Order are not applicable to the Company.

For Jhawar Mantri & Associates

FirmRegn. No. 113221W

Chartered Accountants

(B.P.Mantri)

Partner

Membership No. 45701

Place: Mumbai

Date : 1st Sept 2010.