Auditor Report of Modern Syntex (India) Ltd.

Mar 31, 2014

We have audited the accompanying financial statements of Modern Syntex (India) Limited ("the Company") which comprise the Balance Sheet as at March 31,2014, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Management''s Responsibility for the Financial Statements 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 ("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. 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 mis-statement, whether due to fraud or error. Auditor''s Responsibility.

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in die financial statements. The procedures selected depend on die auditor''s judgment, including the assessment of the risks of material mis-statement of me financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to me Company''s preparation and fair presentation of die financial statements in order to design audit procedures that are appropriate in the circumstances, but not for die purpose of expressing an opinion on effectiveness of me company''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and die reasonableness of die accounting estimates made by management, as well as evaluating die overall presentation of die financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion We report the observations / comments as under:

1 The accounts of the company have been prepared on going concern basis though the accumulated losses of the company have exceeded its net -worth. (Note30.I).

2 The premium on redemption of debentures is not provided (Sub para ivof Note 1.3) and devolved non-fund based borrowings are accounted for as and -when paid I discharged (Note 1.18), amounts whereof are not ascertained.

3 Balance confirmations from debtors, creditors, advances, secured and unsecured lenders, etc, are generally not asked / received and accordingly not reconciled / confirmed. In absence of the same, these balances and their classification are reflected as per the records produced to us (Note 30.4).

4 Penal interest, compound interest and liquidated damages on loans from Financial Institutions, Banks and others, wherever applicable, have not been provided for in current as well as in previous period(s), amount not ascertained (Note30.6).

5 Calls in arrears accounts are subject to confirmation and reconciliation (Note 2.2 and 3.2).

6 Interest on foreign currency loan availed in DM currency calculated at fixed rate of 2.74% p.a. rather than a floating interest rate based on 6-months-DM-Libor plus a margin of0.80% p.a., impact of which is not ascertained.[Note5.5 (c)].

7 a) The company has locked out its POY division since 15th November, 2012. The company has not acertained liability if any, for locked out period from 15th November, 2012 onwards due to matter pending with Hon''ble Gujarat High Court (Note 23.1). b) The company had not provided salary and wages of POY division for the period 1st October, 2012 to 14th November, 2012 amounting to Rs.65.55 Lacs as the matter is pending with Hon''ble Gujarat High Court. In case the liabilty is accounted for as on the Balance Sheet date, the "Current Liabilities " would have been higher by Rs. 65.55 Lacs and "Accumulated Losses" would have been higher by Rs. 65.55 Lacs. (Note 23.1)

8 Amount of Rs. 1,042.41 Lacs paid towards restructuring / settelement to various preference share holders till 31st March 2014 has been reflected under the head "Other current assets"pending sanction ofrehibilition scheme by BIFR. In case, the payments made have been adjusted from the same, than the "Preference Share Capital" and "Current Assets" would have been lower by Rs.1,042.41Lacs (Note 2.1).

9 Amount of Rs. 8,331,38 Lacs paid towards restructuring /settlement to varous lenders till 31st March, 2014 had been reflected under the head "Other current assets" rather than reducing the same from Loans shown as current maturities of long term debt under "Other current liabilities". In case, the payments made have been adjusted from the same, than the "Other current liabilities" and "Current Assets" would have been lower by Rs. 8,331.38 Lacs.(Note 18.1).

10 SUUTIhas restored the total liabilities due to default inpayment of OTSamount and have intimated the outstanding dues of Rs. 1,63.803.63 Lacs including unsecured debts, dues ofUTIMF, overdue & penal interest etc. as per their records as on 31st March, 2013. No further communication regarding outstanding has been received. The company has disputed the entire dues of VTI MF and in the process of renegotiating the OTS proposal with them, pending which, unpaid liability of Rs. 1,360 Lacs is kept in books of accounts as per earlier settlement terms. In case, the liability is accounted for as restored by SUUTland UTIMF, "Current Liabilities" would have been higher by Rs. 1,62,443.83 Lacs and "Accumulated Losses" would have been higher by that amount. (Note 9.3).

11 Exchange Fluctuation on foreign currency loan availed in DM currency to acquire Plant and Machinery has not been provided since 01.04.2001 due to conversion of currency from DM to Euro as there is no currency conversion clause in the agreement. In case, the liability is accounted for based on the exchange rate of Euro as on the Balance Sheet date, the "Current Liabilities" would have been higher by Rs. 13,813.93 Lacs,"Loss before tax for the year" would have been higher by Rs. 4,429.78 Lacs and "Accumulated Losses" would have been higher by Rs. 13,813.93 Lacs [Note 5,5 (b)].

12 Provision for interest amounting to Rs. 910.74Lacs (including Rs.86.91 Lacs for the year) has not been made on public fixed deposits and on retail non convertible debentures as company expects waiver /reliefs. In case, the liability is accounted, the "Current Liabilities" would have been higher by Rs. 910.74 Lacs, Loss before tax for the year" would have been higher by Rs. 86.91 Lacs and "Accumulated Losses" would have been higher by Rs. 910.74 Lacs (Note9.4).

13 The company has not provided for interest on dealers deposit of Rs. 19.00 Lacs (including Rs. 9.50 Lacs for the year), and commission & brokerage on sales of Rs. 24.70 Lacs (including Rs. Nil for the year) related to POY division due to pending settlements with customers / dealers. In case the liabilty is accounted as on the Balance Sheet date, the "Current Liabilities" & "Accumulated Losses" would have been higher by Rs. 43.70 Lacs and "Loss before tax for the year" would have been higher by Rs. 9.50 Lacs. (24.1&. 25.3).

We further report drat, widiout considering items mentioned at para 1 to 7(a) above, me effect of which could not be determined, had die observations made by us in para 7(b) to 13 above been considered, accumulated losses would have been Rs. 2,31,700.66 Lacs (as against die reported figure ofRs. 54,422,91 Lacs), Current Liabilities would have beenRs. 2,07,662.83 Lacs (as against die reported figure ofRs. 38,716.46 Lacs), Preference Share Capital would have been Rs. 457.59 Lacs (as against die reported figure ofRs. 1,500 Lacs) and Current assets would have been Rs. 5,505,94 Lacs (as against the reported figure ofRs. 14,879.73 Lacs). In our opinion and to die best of our information and according to the explanations given to us, die financial statements subject to our observations as above and read together wim Notes to Accounts give die information required by die Act in the manner so required and give a true and fair view in conformity wim die accounting principles generally accepted in India:

(a) in the case of me Balance Sheet, of the state of affairs of die Company as at March 31,2014;

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

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

Report on Other Legal and Regulatory Requirements

1. As required by die Companies {Auditor''s Report) Order, 2003, as amended by die Companies (Auditor''s Report) (Amendment) Order 2004 (togemer the ''Order''), issued by die Central Government of India in terms of Section 227 (4A) of die Companies Act, 1956, we enclose in die Annexure a statement on the matters specified in paragraphs 4 and 5 of die said Order to die extent applicable to die company,

2. As required by section 227(3) of die Companies Act, 1956 we report that:

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

b. In our opinion, proper books of account as required by law have been kept by die Company so far as appears from our examination of those books;

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

d. In our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply wim me Accounting Standards referred to in subsection (3C) of section 231 of the Companies Act, 1956 read with the General Circular 15/2013 dated 13th September, 2013 of die Ministry of Corporate Affairs in respect of section 133 of die Companies Act, 2013.

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

f. Since the Central Government has not issued any notification as to the rate at which die cess is to be paid under section 441A of die Companies Act, 1956 nor has it issued any Rules under die said section, prescribing die manner in which such cess is to be paid, no cess is due and payable by die Company.

Annexure to the Independent Auditors'' Report for the year ended March'' 2014 (Referred to in Paragraph lunder the heading of "report on other legal and regulatory requirements" of our report of even date)

i. Fixed Assets

a) The Company has generally maintained proper records showing full particulars including quantitative details and situtation of its fixed assets except that the records for some of the assets are under updation.

b) As per the information and explanation given to us, the company carries out the physical verification of its fixed assets over a period of three years in a phased manner, which in our opinion is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verifications.

c) The company has not sold any substantial portion of fixed assets during the year.

ii. Inventories

a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

b) The procedures of physical verification of inventory followed by the Company is reasonableand adequate in relation to the size of the Company and the nature of its business.

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

iii. Loans given / taken

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) (a) to (g) of the Companies (Auditor''s Report) Order are not applicable to the company.

iv. Internal Control

According to the information and explanations given to us and in our opinion, there are adequate internal control systems commensurate with the size of the company and the nature of its business, with regard to purchase of inventory, fixed assets and with regard to sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control system.

v. Contracts and arrangement under Section 301

a) According to the information and explanation given to us, we are of the opinion that the particulars of contracts or arrangements referred to in Section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that section.

b) In our opinion and according to the information and explanation given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

vi. Public Deposit

The Company has accepted fixed deposits under Section 58A of the Companies Act, 1956 in past. In our opinion and according to the explanations given to us, the company has complied with the provisions of sections 58A, 58AA or any other relevant provisions of the Act and the rules framed thereunder with regard to deposits accepted from public except for default in payments of the same and non maintenance of liquid assets against the deposits. As given in Note 30.8, the Company Law Board (CLB) has passed an order on 23.1.2002 that "The repayment of fixed deposits shall be made by the Company in accordance with the revival scheme as and when approved by BIFR under provisions of SICA". However payment on compassionate ground are continued to be made as per the decision of the committee formed by Hon''ble Company Law Board for this purpose. As informed to us, no other orders are passed by National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in this regard.

vii. Internal Audit System

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

viii. Cost Records

We have broadly reviewed the books of accounts produced relating to the cost records maintained by the Company pursuant to the rule made by the Central Government under section 209(1) (d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not carried out detailed examination of such accounts and records with a view to ascertain whether these are accurate and complete.

ix. Statutory Dues

a) The Company has been regular in depositing its undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees'' State Insurance, Income Tax, Sales Tax, Wealth Tax, Service

Tax, Customs Duty, Excise Duty, Cess and other statutory dues as applicable with the appropriate authorities during the year except delay in deposition in few cases and pending deposition of undisputed dues for a period of more than six months as at 31.03.2014 are as under:-

Nature rs in lacs

Professional Tax 0.67

Royalty to Gram Panchyat 9.89

b) The details of dues of Income tax / Sales tax / Wealth tax / Service tax / Custom duty / Excise duty / cess not deposited on account of dispute alongwith the amounts involved and the forum where dispute is pending is given as under:

Nature of dues Amount Forum at which jxroliiig Rs. in lacs

Excise Duty 326.31 CESTAT, Ahmedabad

249.04 Gujarat High Court, Ahmedabad

99.41 Commissioner Appeal, Baroda

5.13 Assistant Commisssioner, Baroda (CentralExcise)

88.30 CEGAT, Jaipur

Provident Fund 1.84 PF Tribunal, Delhi_

1.51 PF Department, Jaipur

Sales Tax 313,28 Jt.Conm(Convnercial) Tax Appeal, Baroda

3.55 Commissioner Appeal, Jaipur

Textile Committee Cess 147.88 Textile Committee Tribunal

Municipal Tax 1.56 Rajasthan High Court

Custom Duty 129.44 Commisisoner of Custom, Mumbai

Land & Building Tax 12.43 Municipal Corporation, Alwar



x. The accumulated losses of the company at the end of the finacial year are more than the net worth of the company. It has incurred cash losses during the current year as well as in immediately preceding financial year.

xi. The Company has defaulted in repayment of dues to Financial Iinstitutions, Banks and Debenture holders / Public Fixed Depositors amount of Rs. 8,488.48 Lacs, 116,577.22 Lacs andRs. 1,979.29 Lacs respectively as on the Balance Sheet date from the year 1999-2000 onwards as per books of accounts of the Company.

xii. The Company has not granted any loans and advances on the basis of any security by way of pledge of shares, debentures and other securities.

xiii. As explained, the company is not a chit fund or a nidhi / mutual benefit fund / society. Accordingly, the provisions of clause xiii of Para 4 of the Companies (Auditor''s Report) Order are not applicable to the Company. xiv. As explained and verified, the Company is not dealing or trading in shares, securities, debentures and other investments.

xv. As explained and verified, the Company has not given any guarantee for loans taken by others from Banks or Financial Institutions.

xvi. The Company has not obtained any term loans during the year under review.

xvii. On an overall examnitaion of the balance sheet of the company, we are of the opinion that no fund raised on short term basis have been utilised for long term uses.

xviii. 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 Companies Act, 1956.

xix. According to the information and explanations given to us, the Company has not created security or charges against some of the debentures outstanding at the Balance Sheet date. As explained, the company is in the process of settlement of such dues.

xx. According to the information and explanations given to us, the Company has not raised any money from the public during the year through public issue.

xxi. According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year.



For T.R. CHADHA & CO. Chartered Accountants Firm Regn. No: 00671IN

Arvind Modi Place: Mumbai Partner Date : 27th June, 2014 M. No. 112929

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Mar 31, 2012

1. We have audited the attached Balance Sheet of Modern Syntex (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. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

3. As required by the Companies (Auditor's Report) Order, 2003 (as amended) issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matter specified in paragraph 4 and 5 of the said Order to the extent applicable to the company.

4. We report the observations/comments as under:

4.1 The accounts of the company have been prepared on going concern basis though the accumulated losses of the company have exceeded its net worth. (Note 31.I).

4.2 The premium on redemption of debentures is not provided (Sub para iv of Note 1.3) and devolved non-fund based borrowings are accounted for as and when paid/discharged (Note 1.18), amounts whereof are not ascertained.

4.3 Calls In arrears accounts are subject to confirmation and reconciliation. (Note 2.2 and 3.2).

4.4 Interest on foreign currency loan availed in DM currency is calculated at fixed rate of 2.74% per annum rather than a floating interest rate based on 6-months-DM-Libor plus a margin of 0.80% per annum, impact of which is not ascertained. (Note 5.5c).

4.5 Balance confirmations from debtors, creditors, advances, secured and unsecured lenders etc. are generally not received and accordingly not reconciled/confirmed In absence of the same, these balances and their classification are reflected as per the records produced (Note 31.3).

4.6 Penal interest, compound interest and liquidated damages on loans from Financial Institutions, Banks and others, wherever applicable, have not been provided for in current as well as in previous period(s), amount not ascertained (Note 31.5).

4.7 Amount of Rs. 991.94 Lacs paid (including Rs. 126.98 Lacs paid during the year) towards restructuring settlement to various preference share holders till 31st March 2012 has been reflected under the head "Other current assets" pending sanction of rehabilitation scheme by BIFR (Note 2.1).

4.8 Exchange Fluctuation on foreign currency loan availed in DM currency to acquire Plant and Machinery has not been provided since 01.04.2001 due to conversion of currency from DM to Euro as there is no currency conversion clause in the agreement. In case, the liability is accounted for based on the exchange rate of Euro as on the Balance Sheet date, the "Current liabilities " would have been higher by Rs. 8782.86 Lacs (Previous year Rs. 7012.36 Lacs), "Loss after exceptional items for the year" would have been higher by Rs. 1770.50 Lacs (Previous year Rs. 952.63 Lacs) and "Accumulated Losses" would have been higher by Rs.8782.86 Lacs (Previous year Rs. 7012.36Lacs). (Note 5.5 (b)).

4.9 SUUTI has restored the total liabilities due to default in payment of OTS amount and have intimated the outstanding dues of Rs. 111382.83 Lacs including unsecured debts, dues of UTIMF, over due & penal interest etc. as per their records as on 31st March, 2012. The company has disputed the above dues and is in the process of renegotiating the OTS proposal with them, pending which, unpaid liability-of Rs. 1360 Lacs is kept in books of accounts as per earlier settlement terms. In case, the liability is accounted for as restored by SUUTI and UTIMF, "Current Liabilities" would have been higher by Rs. 110022.83 Lacs and "Accumulated Losses" would have been higher by that amount. The impact on the loss for the year could not be ascertained. (Note 9.3).

4.10 Amount of Rs. 14823.38 Lacs paid (including Rs. 99.05 Lacs paid during the year) towards restructuring/settlement to varous lenders till 31st March, 2012 had been reflected under the head "Other current assets" rather than reducing the same from Loans shown as current maturities of long term debt under "Other current liabilities". In case, the payments made have been adjusted from the same, than the "Current liabilities" and "Current assets" would have been lower by Rs. 14823.38 Lacs. (Note 18.1).

4.11 Provision for interest amounting to Rs. 727.92 Lacs (including Rs. 136.03 Lacs for the year) has not been made on public fixed deposits and on retail non convertible debentures as company expects waiver/ reliefs in this regard. In case the interest is accounted for, the current liabilities would have been higher by Rs. 72 7.92 lacs, loss after exceptional items for the year would have been higher by Rs. 136.03 lacs and accumulated losses would have been higher by Rs. 727.92 lacs. (Note 31.6).

We further report that, without considering items mentioned at para 4.1 to 4.6 above,- the effect of which could not be determined, had the observations made by us in para 4.7 to 4. 11 above been considered, "Loss after exceptional items for the year" would have been Rs. 4505.54 lacs (as against reported figure of Rs. 2599.01 lacs), accumulated losses would have been Rs.169571.75 Lacs (as against the reported figure of Rs. 50038.14 Lacs), Current Liabilities would have been Rs. 149727.61 Lacs (as against the reported figure of Rs. 4501 /Rs 38Lacs), Preference Share Capital would have been Rs. 508.06 Lacs (as against the reported figure of Rs. 1500 Lacs) and Current assets would have been Rs. 7544.41 Lacs (as against the reported figure of Rs.23359.73 Lacs).

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

5.1 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.

52 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.

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

5.4 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 to the extent the same is applicable to the company except as otherwise mentioned in our report.

5.5 On the basis of written representations received from the directors and taken on record by the Board of Directors and the legal opinion received, we report that none of the directors is disqualified as on 31st March 2012 from being appointed as directors in terms of clause (g) of sub-section (1) of section 274 of the Companies Act 1956.

5.6 In our opinion and to the best of our information and according to the explanations given to us, the said accounts subject to para 4 above read together with the Notes to Accounts, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

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

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

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

Annexure to the Auditors' Report for the year ended March 2012

(Referred to in Paragraph 3 of our Report of even date)

I. Fixed Assets

a) The Company has generally maintained proper records showing fall particulars including quantitative details and situation of its fixed assets except that the records for some of the assets are under updation.

b) As per the information and explanation given to us, the company carries out the physical verification of its fixed assets over a period of three years in a phased manner, which in our opinion is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verifications.

c) The company has not sold substantial portion of fixed assets during the year.

II. Inventories

a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

b) The procedures of physical verification of inventory followed by the Company is reasonable and adequate in relation to the size of the Company and the nature of its business.

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

III. Loans given/taken

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) (a) to (g) of the Companies (Auditor's Report) Order are not applicable to the company.

IV. Internal Control

According to the information and explanations given to us and in our opinion, there are adequate internal control systems commensurate with the size of the company and the nature of its business, with regard to purchase of inventory, fixed assets and with regard to sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control system.

V. Contracts and arrangement under Section 301

a) According to the information and explanation given to us, we are of the opinion that the particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section.

b) In our opinion and according to the information and explanation given to us; the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

VI. Public Deposit

The Company has accepted fixed deposits under Section 58A of the Companies Act, 1956 in past. In our opinion and according to the explanations given to us, the company has complied with the provisions of sections 58 A, 58 AA or any other relevant provisions of the Act and the rules framed there under with regard to deposits accepted from public except for default in payments of the same and non maintenance of liquid assets against the deposits. As given in Note 31.7, the Company Law Board (CLB) has passed an order on 23.1.2002 that "The repayment of fixed deposits shall be made by the Company in accordance with the revival scheme as and when approved by BIFR under provisions of SICA". However payment on compassionate ground are continued to be made as per the decision of the committee formed by Hon'ble Company Law Board for this purpose. As informed to us, no other orders are passed by National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in this regard.

VII. Internal Audit System

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

VIII. Cost Records

We have broadly reviewed the books of accounts produced relating to the cost records maintained by the Company pursuant to the rule made by the Central Government under section 209(1) (d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not carried out detailed examination of such accounts and records with a view to ascertain whether these are accurate and complete.

IX. Statutory Dues

a) The Company has generally been regular in depositing its undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income tax, Sales Tax, Wealth Tax, Service tax, Customs Duty, Excise Duty, Cess and other statutory dues as applicable with the appropriate authorities during the year. According to the information given to us, no such undisputed amounts were in arrears as at 31.03.2012 for a period of more than six months from the date they became payable.

b) The details of dues of Income tax/Sales tax/Wealth tax/Service tax/Custom duty/Excise duty/cess not deposited on account of dispute along with the amounts involved and the forum where dispute is pending is given as under:

Nature of dues Amount Forum at which pending Rs. in Lacs

Excise Duty 304.08 CESTAT, Ahmedabad

246.26 Gujarat High Court, Ahmedabad

99.17 Commissioner Appeal, Baroda

5.13 Assistant Commissioner, Baroda (Central Excise

88.30 CEGAT, Jaipur

Provident Fund 1.84 PF Tribunal, Delhi

1.51 PF Department, Jaipur

Sales Tax 309.80 Jt Comm. (Commercial)Tax Appeal,Baroda

3.55 Commissioner Appeal, Jaipur

Textile Committee 147.08 Textile Committee Tribunal Cess

Municipal Tax 1.56 Rajasthan High Court

Custom Duty 129.44 Commissioner of Custom, Mumbai

x) The accumulated losses of the company at the end of the financial year are more than the net worth of the company. It has incurred cash losses during the current year as against cash profits in immediately preceding financial year.

xi) The Company has defaulted in repayment of dues to Financial institutions/Banks/Debenture holders. As on the Balance Sheet date, an amount of Rs. 7821.41 Lacs, Rs. 15727.06 Lacs and Rs. 1043.19 Lacs is in default to financial institutions, banks and debenture holders respectively from the year 1999-2000 onwards as per books of accounts of the Company. This is subject to other provisions not made in the accounts as given in respective Notes to Accounts.

xii) The Company has not granted any loans and advances on the basis of any security by way of pledge of shares, debentures and other securities.

xiii) . As explained, the company is not a chit fund or a nidhi/mutual benefit fund/society. Accordingly, the provisions of clause xiii of Para 4 of the Companies (Auditor's Report) Order are not applicable to the Company.

xiv) As explained and verified, the Company is not dealing or trading in shares, securities, debentures and other investments.

xv) As explained and verified, the Company has not given any guarantee for loans taken by others from Banks or Financial Institutions.

xvi) The Company has not obtained any term loans during the year under review,

xvii) On an overall examination of the balance sheet of the company, we are of the opinion that no fund raised on short term basis have been utilised for long term uses.

xviii) 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 Companies Act, 1956.

xix) According to the information and explanations given to us, the Company has not created security or charges against some of the debentures outstanding at the Balance Sheet date. As explained, the company is in die process of settlement of such dues.

xx) According to the information and explanations given to us, the Company has not raised any money from the public during the year through public issue.

xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year.



For T.R. Chadha & Co. Chartered Accountants Firm Regn. No: 006711N

Vikas Kumar Partner Membership No. 75363

Place: Mumbai Date :25th June, 2012

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Mar 31, 2011

1. We have audited the attached Balance Sheet of Modern Syntex (India) Limited as at 31st March, 2011, the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

3. As required by the Companies (Auditor's Report) Order, 2003 (as amended) issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matter specified in paragraph 4 and 5 of the said Order to the extent applicable to the company.

4. We report the observations / comments as under:

4.1 The accounts of the company have been prepared on going concern basis though the accumulated losses of the company have exceeded its net worth. (Note No. 1 of Schedule 15).

4.2 The premium on redemption of debentures is not provided (Accounting Policy No.3.1 of Schedule 15) and devolved non-fund based borrowings are accounted for as and when paid /discharged (Accounting Policy No. 15 of Schedule 15) rather than on accruan basis, amounts whereof are not ascertained.

4.3 Balance confirmations from debtors, creditors, advances, secured and unsecured lenders etc. are generally not received and accordingly not reconciled / confirmed. In absence of the same, these balances and their classification are reflected as per the records produced (Note No. 3 of Schedule 15).

4.4 Amount of Rs.864.96 lacs paid (including Rs. 126.98 lacs paid during the year) towards restructuring / settelement to various preference shareholders till 31st March, 2011 has been reflected under the head "Loans and Advances" pending sanction of rehabilitation scheme by BIFR (Note No.4 of schedule 15).

4.5 Penal interest, compound interest and liquidated damages on loans from Financial Institutions, Banks and others, wherever applicable, have not been provided for in current as well as in previous period(s), amount not ascertained (Note No. 6 of Schedule 15).

4.6 Calls in arrears accounts are subject to confirmation and reconciliation, if any. (Note No. 8 of Schedule 15).

4.7 Interest on foreign currency loan availed in DM currency is provided at fixed rate of 2.74% per annum rather than a floating interest rate based on 6 months DM-Libor plus a margin of 0.80% p.a. as per agreement, impact of which is not ascertained. (Note No. 10(b) of Schedule 15).

4.8 Effect of restructuring / reschedulement of debts, liabilities and preference shares capital as per the restructuring scheme considered by financial institutions / banks during March 1998 had been given in accounts in that year though that scheme could not be implemented fully and instruments were not issued in various cases (Note No. 11 of Schedule 15).

4.9 The disclosure of Unpaid amounts at the year end together with interest paid or payable as required under the Micro, Small and Medium Enterprises Development Act, 2006, is not disclosed in view of insufficient information from vendor regarding their status as Micro, Small and Medium Enterprise (Note No. 13 of Schedule 15).

4.10 SUUTI has restored the total liabilities due to default in payment of OTS amount and have intimated the outstanding dues of Rs. 91492.48 lacs including unsecured debts, dues of UTI Mutual Fund, overdue & penal interest etc. as. per their records as on 31.03.2011. The company has disputed the entire claimed dues of UTI Mutual Fund and is in the process of renegotiating the OTS proposal with SUUTI, pending which, unpaid liability of Rs.1360 lacs is kept in books of accounts as per settlement terms. In case, the liability is accounted for as restored by SUUTI and UTI Mutual Fund, "Loan Funds " would have been higher by Rs. 90132.48 lacs and "Accumulated Losses" would have been higher by that amount. The impact on loss for the year cannot be commented in absence of the information. (Note No. 2.6 of Schedule 15).

4.11 Amount of Rs. 15161.33 lacs paid (including Rs.287.30 lacs paid during the year) towards restructuring/settlement to various secured lenders till 31st March, 2011 had been reflected under the head "Loans & Advances" rather than reducing the same from Secured Loans. In case, the payments made have been adjusted from Secrured Loans, than the "Loan Funds" and "Loans and Advances" would have been lower by Rs.l 5161.33 lacs. (Note No. 5 of Schedule 15).

4.12 Exchange Fluctuation on foreign currency loan availed in DM currency to acquire Plant and Machinery has not been provided since 01.04.2001 due to conversion of currency from DM to Euro as there is no currency conversion clause in the agreement. In case, the liability is accounted for based on the exchange rate of Euro as on the Balance Sheet date, the "Loan Funds " would have been higher by Rs. 7012.36 lacs, "Loss after exceptional items for the year" would have been higher by Rs.952.63 lacs and "Accumulated Losses" would have been higher by Rs.7012.36 lacs. [Note No. 10(a) of Schedule 15].

4.13 Provision for interest amounting to Rs. 1464.59 lacs (including Rs. 138.69 lacs for the year) has not been made on public fixed deposits and retail non convertible debentures as company expects waiver / reliefs. In case, the interest is accounted, the "Loan Funds" would have been higher by Rs.1464.59 lacs, "Loss after exceptional items for the year" would have been higher by Rs.l38.69 lacs and "Accumulated Losses" would have been higher by Rs. 1464.59 lacs. (Note No. 14 of Schedule 15).

We further report that, without considering items mentioned at para 4.1 to 4.9 above, the effect of which could not be determined, had the observations made by us in para 4.10 to 4.13 above been considered, "Loss after exceptional items for the year" would have been Rs.l 278.51 lacs (as against the reported figure of Rs. 187.19 lacs), accumulated losses would have been Rs.146048.56 lacs (as against the reported figure of Rs.47439.13 lacs), Loan funds would have been Rs.l 24962.33 lacs (as against the reported figure of Rs.41514.23 lacs), Loans and Advances would have been Rs.4875.50 lacs (as against the reported figure of Rs.20036.83 lacs).

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

5.1 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.

5.2 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.

5.3 The Balance Sheet, Profit and Loss Account and Cash Flow Statements dealt with by this report are in agreement with the books of account.

5.4 In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub section (3C) of Section 211 of the Companies Act, 1956 to the extent the same is applicable to the company except as otherwise mentioned in our report.

5.5 As the company has defaulted in payment of deposit, loan and interest thereon, the directors of the company are restricted from being appointed as directors under clause B of Section 274 (1) (g) of the Companies Act, 1956. As per the opinion obtained by the company, existing directors of the company can continue to be in office during their entire tenure and they can also be reappointed as a director on the expiry of their tenure. We have been informed that the company has made representation to the Central Government / Company Law Board seeking appropriate exemption from the applicability of the section.

5.6 In our opinion and to the best of our information and according to the explanations given to us, the said accounts subject to para 4, 5.4 and 5.5 above read together with the Notes to Accounts, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

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

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

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

Annexure to the Auditors' Report for the year ended March 2011 (Referred to in Paragraph 3 of our Report of even date)

I. Fixed Assets

a) The Company has generally maintained proper records showing full particulars including quantitative details and situtation of its fixed assets except that the records for some of the assets are under updation.

b) As per the information and explanation given to us, the company carries out the physical verification of its fixed assets over a period of three years in a phased manner, which in our opinion is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verifications.

c) The company has not sold substantial portion of fixed assets during the year.

II. Inventories

a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

b) The procedures of physical verification of inventory followed by the Company is reasonable and adequate in relation to the size of the Company and the nature of its business.

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

III. Loans given / taken

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) (a) to (g) of the Companies (Auditor's Report) Order are not applicable to the company.

IV. Internal Control

According to the information and explanations given to us and in our opinion, there are adequate internal control systems commensurate with the size of the company and the nature of its business, with regard to purchase of inventory, fixed assets and with regard to sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control system.

V. Contracts and arrangement under Section 301

a) According to the information and explanation given to us, we are of the opinion that the particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section.

b) In our opinion and according to the information and explanation given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

VI. Public Deposit

The Company has accepted fixed deposits under Section 58A of the Companies Act, 1956 in past. In our opinion and according to the explanations given to us, the company has complied with the provisions of sections 58A, 58 AA and other relevant provisions of the Act and the rules framed thereunder with regard to deposits accepted from public except for default inpayments of the same and non maintenance of liquid assets against the deposits. As given in Note No. 16 of Schedule 15, the Company Law Board (CLB) has passed an order on 23.1.2002 that "The repayment of fixed deposits shall be made by the Company in accordance with the revival scheme as and when approved by BIFR under provisions of SICA". However payment on compassionate ground are continued to be made as per the decision of the committee formed by Hon'ble Company Law Board for this purpose. As informed to us, no other orders are passed by National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in this regard.

VII. Internal Audit System

The Company has an internal audit system, which in our view, is commensurate considering the size and nature of its business.

VIII. Cost Records

We have broadly reviewed the books of accounts produced relating to the cost records maintained by the Company pursuant to the rule made by the Central Government under section 209(1) (d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not carried out detailed examination of such accounts and records with a view to ascertain whether these are accurate and complete.

IX. Statutory Dues

a) The Company has generally been regular in depositing its undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income tax, Sales Tax, Wealth Tax, Service tax, Customs Duty, Excise Duty, Cess and other statutory dues as applicable with the appropriate authorities during the year. According to the information given to us, no such undisputed amounts were in arrears as at 31.03.2011 for a period of more than six months from the date they became payable.

b) The details of dues of Income tax / Sales tax / Wealth tax / Service tax/ Custom duty / Excise duty / cess not deposited on account of dispute alongwith the amounts involved and the forum where dispute is pending is given as under:

Nature of dues Amount Forum at which pending Rs. in Lac

Excise Duty 225.97 CESTAT, Ahmedabad

155.15 Gujarat High Court, Ahmedabad

69.12 CESTAT, Ahmedabad

62.21 Commissioner, Jaipur

19.01 Deputy Commissioner Alwar, Central Excise.

53.13 Commissioner Appeal, Baroda

7.08 Assistant Commissioner, Alwar (Central Excise)

Provident , 2.53 PF Tribunal, Delhi

Fund 0.82 PF Department, Jaipur

Sales Tax 287.94 Jt. Comm. (Commercial) Tax Appeal, Baroda

3.55 Commissioner Appeal, Jaipur

Textile 147.08 Textile Committee Tribunal

Committee Cess

Municipal Tax 1.56 Rajasthan High Court

Custom Duty 129.44 Commisisoner of Custom, Mumbai

x) The accumulated losses of the company at the end of the finacial year are more than the net worth of the company. It has not incurred cash losses during the current year and in immediately preceding financial year.

xi) The Company has defaulted in repayment of dues to Financial Iinstitutions / Banks / Debenture holders. As on the Balance Sheet date, an amount Of Rs. 135 lacs, Rs.15300.82 lacs and Rs.9263.01 lacs is in default to financial institutions, banks and debenture holders respectively from the year 1999- 2000 onwards as per books of accounts of the company.

xii) The Company has not granted any loans and advances on the basis of any security by way of pledge of shares, debentures and other securities.

xiii) As explained, the company is not a chit fund or a nidhi / mutual benefit fund / society. Accordingly, the provisions of clause xiii of Para 4 of the Companies (Auditor's Report) Order are not applicable to the Company.

xiv) As explained and verified, the Company is not dealing or trading in shares, securities, debentures and other investments.

xv) As explained and verified, the Company has not given any guarantee for loans taken by others from Banks or Financial Institutions.

xvi) The Company has hot obtained any term loans during the year under review.

xvii) On an overall examnitaion of the balance sheet of the company, we are of the opinion that no fund raised on short term basis have been utilised for long term uses.

xviii) 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 Companies Act, 1956.

xix) According to the information and explanations given to us, the Company has not created security or charges against some of the debentures outstanding at the Balance Sheet date. As explained, the company is in the process of settlement of such dues.

xx) According to the information and explanations given to us, the Company has not raised any money from the public during the year through public issue.

xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year.



For T.R.Chadha & Co. Chartered Accountants Firm Regn. No: 00671 IN

Vikas Kumar

Partner Membership No. 75363

Place : Mumbai Date : 17.06.2011

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Mar 31, 2010

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

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

3. As required by the Companies (Auditors Report) Order, 2003 (as amended) issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matter specified in paragraph 4 and 5 of the said Order to the extent applicable to the company.

4. We report the observations / comments as under:

4.1 The accounts of the company have been prepared on going concern basis though the accumulated losses of the company have exceeded its net worth. (Note No. 17 of Schedule 15).

4.2 The premium on redemption of debentures is not provided (Accounting Policy No.3.1 of Schedule 15) and devolved non-fund based borrowings (Accounting Policy No. 15 of Schedule 15) are accounted for as and when paid / discharged (amount not ascertained).

4.3 Balance confirmations from debtors, creditors, advances, secured and unsecured lenders, etc. are generally not received and accordingly not reconciled / confirmed. In absence of the same, these balances and their classification are reflected as per the records produced (Note No. 3 of Schedule 15).

4.4 Penal interest, compound interest and liquidated damages on loans from Financial Institutions, Banks and others, wherever applicable, have not been provided for in current as well as in previous period(s), amount not ascertained (Note No. 6 of Schedule 15).

4.5 Calls in arrears accounts are subject to confirmation and reconciliation, if any. (Note No. 8 of Schedule 15 ).

4.6 Effect of restructuring / reschedulement of debts, liabilities and preference shares capital as per the restructuring scheme considered by financial institutions / banks during March 1998 had been given in accounts in that year though that scheme could not be implemented fully and instruments were not issued in various cases (Note No. 11 of Schedule 15 ).

4.7 The name of small-scale undertakings having outstandings is not disclosed in view of insufficient information from suppliers regarding their status as SSI units (Note No. 13 of Schedule 15).

4.8 The disclosure of Unpaid amounts at the year end together with interest paid or payable as required under the Micro, Small and Medium Enterprises Development Act, 2006, is not disclosed in view of insufficient information from vendor regarding their status as Micro, Small and Medium Enterprise (Note No. 14 of Schedule 15).

4.9 Non provision of interest, charges etc..as per terms of settlement in case of default in fulfilling the payment obligations of restructured debts as per schedule in case of one lender (amount not ascertained). (Note No. 16 of Schedule 15).

4.10 The Provision towards gratuity is made based on actuarial valuation considering the threshold limit of Rs.3.50 Lacs though the limit is increased to Rs.10 Lac vide notification dated 18/5/2010 (amount not ascertained) (Note No. 23 of Schedule 15).

4.11 Amount ofRs. 73 7.98 lakh paid (including Rs.17l.98 lakh paid during the year) towards restructuring / settlement to various Preference Share holders till 31s March, 2010 has been reflected under the head "Loans and Advances" pending sanction of rehabilitation scheme by BIFR. (Note No. 4 of Schedule 15).

4.12 Amount of Rs. 18960.32 lakh paid (including Rs.5161.72 lakh paid during the year) towards restructuring / settlement to various secured lenders till 3 Is March, 2010 had been reflected under the head "Loans and Advances" rather than reducing the same from Secured Loans. In case, the payment made have been adjusted from Secured Loans, than the "Secured Loans" and "Loans and Advances" would have been lower by Rs.18960.32 lakh. (Note No.5 of Schedule 15).

4.13 Exchange Fluctuation on foreign currency loan availed in DM currency to acquire Plant and Machinery has not been provided since 01.04.2001 due to conversion of currency from DM to Euro as there is no currency conversion clause in the agreement. In case, the liability is accounted for based on the exchange rate of Euro as on the Balance Sheet date, the "Unsecured Loan" would have been higher by Rs.6059.73 lakh (Previous year Rs.8U2.44 lakh), "Profit after exceptional items for the year " would have been higher by Rs. 2052.71 lakh (Previous year loss would have been higher by Rs. 1538.87 Lacs) and "Accumulated Losses" would have been higher by Rs.6059.73 lakh (Previous year Rs.8112.44 lakh). (Note No. 10 of Schedule 15).

4.14 Provision for interest amounting to Rs. 1325.90 lakh (including Rs. 141.04 lakh for the year) has not been made on public fixed deposits and retail non convertible debentures as company expects waiver / reliefs (Note No. 15 of Schedule 15). We further report that, without considering items mentioned at para 4.1 to 4.11 above, the effect of which could not be determined, had the observations made by us in para 4.12 and 4.14 above been considered, the profit after exceptional items for the year would have been Rs.27071.34 lakh (as against the reported figure of Rs.25159.67 lakh), accumulated losses would have been Rs.54637.57 lakh (as against the reported figure ofRs.47251.94 lakh), Loan funds would have been Rs.35010.73 lakh (as against the reported figure of Rs.46585.42 lakh) and Loans and Advances would have been Rs.5048.28 lakh (as against the reported figure ofRs.24008.60 lakh). 5. Further to our comments in the Annexure referred to above, we report that:

5.1 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.

5.2 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.

5.3 The Balance Sheet, Profit and Loss Account and Cash Flow Statements dealt with by this report are in agreement with the books of account.

5.4 In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub section (3C) of Section 211 of the Companies Act, 1956 to the extent the same is applicable to the company except as otherwise mentioned in our report.

5.5 As the company has defaulted in payment of deposit, loan and interest thereon, the directors of the company are restricted from being appointed as directors under clause B of Section 274 (1) (g) of the Companies Act, 1956. As per the opinion obtained by the company, existing directors of the company can continue to be in office during their entire tenure and they can also be reappointed as a director on the expiry of their tenure. We have been informed that the company has made representation to the Central Government / Company Law Board seeking appropriate exemption from the applicability of the section.

5.6 In our opinion and to the best of our information and according to the explanations given to us, the said accounts subject to para 4 and 5.5 above read together with the Notes to Accounts, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

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

(ii) in the case of the Profit and 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 the Auditors Report for the year ended March 2010 (Referred to in Paragraph 3 of our Report of even date)

I. Fixed Assets

a) The Company has generally maintained proper records showing full particulars including quantitative details and situtation of its fixed assets except that the records for some of the assets were under updation.

b) As per the information and explanation given to us, the company has physically verified its fixed assets during the year, which in our opinion is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verifications.

c) During the year, the company has sold substantial portion of fixed assets pertaining to Suitings and Yarn Divisions. However, in our opinion and according to informations and explanations given to us, the same has not affected the going concern of the company.

II. Inventories

a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

b)The procedures of physical verification of inventory followed by the Company is reasonable and adequate in relation to the size of the Company and the nature of its business.

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

III. Loans given / taken

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) (a) to (g) of the Companies (Auditors Report) Order are not applicable to the company.

IV. Internal Control

According to the information and explanations given to us and in our opinion, there are adequate internal control systems commensurate with the size of the company and the nature of its business, with regard to purchase of inventory, fixed assets and with regard to sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control system.

V. Contracts and arrangement under Section 301

a) According to the information and explanation given to us, we are of the opinion that the particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section.

b) In our opinion and according to the information and explanation given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

VI. Public Deposit

The Company has accepted fixed deposits under Section 58A of the Companies Act, 1956 in past. In our opinion and according to the explanations given to us, the company has complied with the provisions of sections 58A, 58 AA or any other relevant provisions of the Act and the rules framed thereunder with regard to deposits accepted from public except for default in payments of the same and non maintenance of liquid assets against the deposits. As given in Note No. 18 of Schedule 15, the Company Law Board (CLB) has passed an order on 23.1.2002 that "The repayment of fixed deposits shall be made by the Company in accordance with the revival scheme as and when approved by BIFR under provisions of SICA". However payment on compassionate ground are continued to be made as per the decision of the committee formed by Honble Company Law Board for this purpose. As informed to us, no other orders are passed by National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in this regard.

VII. Internal Audit System

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

VIII. Cost Records

We have broadly reviewed the books of accounts produced relating to the cost records maintained by the Company pursuant to the rule made by the Central Government under section 209(1) (d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not carried out detailed examination of such accounts and records with a view to ascertain whether these are accurate and complete.

IX. Statutory Dues

a) The Company has generally been regular in depositing its undisputed

statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income tax, Sales Tax, Wealth Tax, Service tax, Customs Duty, Excise Duty, Cess and other statutory dues as applicable with the appropriate authorities during the year. According to the information given to us, no such undisputed amounts were in arrears as at 31.03.2010 for a period of more than six months from the date they became payable. b) The details of dues of Income tax / Sales tax / Wealth tax / Service tax / Custom duty / Excise duty / cess not deposited on account of dispute alongwith the amounts involved and the forum where dispute is pending is given as under:

Nature of dues Amount Forum at which pending Rs. in Lac

Excise Duty 225.29 CESTAT, Ahmedabad

155.15 CESTAT, WZB, Mumbai

69.12 Commissioner, Baroda

62.21 Commissioner, Jaipur

19.01 Deputy Comm. Alwar, Central Excise. 4.42 Comm. Appeal, Baroda

7.08 Assistant Commissioner, Alwar (Central Excise)

PF late deposit demand 2.53 PF Tribunal, Delhi PF Short Payment demand 0.82 PF Department, Jaipur Sales tax 7.42 Sales Tax Tribunal,Delhi

287.94 Jt. Comm. (Commercial)

Tax Appeal, Baroda

3.55 Commissioner Appeal, Jaipur

Textile Committee Cess 147.08 Textile Committee Tribunal

Municipal Tax 1.56 Rajasthan High Court

Custom Duty 129.44 Commissioner Custom Duty. Mumbai



x) The accumulated losses of the company at the end of the financial year are more than the net worth of the company. It has not incurred cash losses during the current year and in immediately preceding financial year.

xi) The Company has defaulted in repayment of dues to Financial Institutions /Banks /Debenture holders. As on the Balance Sheet date, an amount of Rs.135.00 lakh, Rs.14928.22 lakh and Rs.8795.31 lakh is in default to financial institutions, banks and debenture holders respectively from the year 1999-2000 onwards.

xii) The Company has not granted any loans and advances on the basis of any security by way of pledge of shares, debentures and other securities.

xiii) As explained, the company is not a chit fund or a nidhi / mutual benefit fund / society. Accordingly, the provisions of clause xiii of Para 4 of the Companies (Auditors Report) Order are not applicable to the Company.

xiv) As explained and verified, the Company is not dealing or trading in shares, securities, debentures and other investments.

xv) As explained and verified, the Company has not given any guarantee for loans taken by others from Banks or Financial Institutions.

xvi) The Company has not obtained any term loans during the year under review.

xvii) On an overall examination of the balance sheet of the company, we are of the opinion that no fund raised on short term basis have been utilised for long term uses.

xviii) 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 Companies Act, 1956.

xix) According to the information and explanations given to us, the Company has not created security or charges against some of the debentures outstanding at the Balance Sheet date. As explained, the company is in the process of settlement of such dues.

xx) According to the information and explanations given to us, the Company has not raised any money from the public during the year through public issue.

xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year.

For T.R.Chadha & Co.

Chartered Accountants

Firm Regn. No: 00671 IN

Vikas Kumar

Place : Mumbai Partner

Date : June 18, 2010 Membership No. 75363