Auditor Report of SM Dyechem Ltd.

Mar 31, 2014

We have audited the accompanying financial statements of the SM Dyechem Limited, which comprise the Balance Sheet as at 31st March, 2014 and the Statement of Profit and Loss and the cash flow statement for the period ended, and a summary of significant accounting policies and other '' explanatory information.

Management''s Responsibility forthe Financial Statements

Management is responsible for the preparation of these financiai statements that give a true and fair view of the consolidated financiai position, financiai performance and cash flows of the Company in accordance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act 1956 ("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 and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the consolidated financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. ''

Auditor''s Responsibility

1. Our responsibility is to express an opinion on these financiai 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 a re free from material misstatement.

2. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of thefinancial statements.

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

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India.

(a) In the case of the Balance Sheet, of the state of affairs of the company as at March 31,2014,

(b) In the case ofthe statement of Profit and Loss, of the Loss for the period ended on that date; and

(c) In the case of the Cash Flow statement, of the cash flows for the period ended on that date.

Emphasis of Matter

We draw attention to Note No. 2.18 regarding the preparation of financiai statements on a going concern basis for the reasons stated therein and filing of Draft rehabilitation Scheme to Board of Industrial and Financial Reconstruction (BIFR). Our opinion is not qualified in respect of this matter.

Report on Other Legal and Regufatory Requirements

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

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

a. we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit except for the matter described in the Basis for Qualified Opinion paragraph;

b. in our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books

c. the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this Report are in agreement with the books of account and with the returns received from branches not visited by us

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

e. on the basis of written representations received from the directors as on March 31,2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31.2014, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act (Refer Note No. 2.22);

ANNEXURE TO AUDITORS'' REPORT

Referred to in Paragraph 1 under ''Report on Other Legal and Regulatory Requirements'' in the Independent Auditors'' Report of even date to the members of SM Dyechem Limited, (''the Company'') on the financial statement for the period ended as on 31 st March 2014 we report that:

(i) In respect of its Fixed Assets: -

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

(b) We are informed that most of the fixed assets have been physically verified by the management during the period and that no material discrepancies were noticed on such physical verification. In our opinion, the frequency of such verification is reasonable having regards to the size of the Company and nature of its assets.

(c) in our opinion, the Company has not disposed off a substantial part of fixed assets during the year.

(ii) In respect of its Inventories: -

There were no stock as on 31st March 2014, however the Company has followed the stock verification procedures as mentioned in (a), (b) and (c) below, during the year: -

(a) The closing stock of goods have been physically verified during the period by the management. In our opinion, the frequency of such verification is reasonable.

(b) The procedures of physical verification of stocks followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The Company has maintained proper records of inventories. As explained to us, the discrepancies noticed on verification between the physical stocks and book records were not material in relation to the operations ofthe Company and the same have been properly dealt with in the books of account.

(iii) In respect of secured /unsecured loan granted/taken to/ from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956:-

(a) During the period the Company has not granted any unsecured/secured loans to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(b) The Company has not taken any unsecured/secured loans from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of stores, raw materials including components, plant and machinery, equipment and other assets and forthe sale of goods. During the course of our audit, we have not observed any major weaknesses in internal controls.

(v) In respect of particulars of contracts or arrangements and transactions entered in the register maintained in pursuance of section 301 ofthe Companies Act 1956: -

(a) in our opinion and according to the information and explanations given to us, the transaction made in pursuance of contracts or arrangements, that needed to be entered into the register maintained under Section 301 ofthe Companies Act, 1956 have been so entered.

(b) In our opinion and according to the information and explanations give to us, these transactions of purchase of goods & material and sale of goods, material & services made in pursuance of contracts or arrangement required to be entered into the register maintained under Section 301 of the Companies Act, 1956 aggregating during the period to Rs.5,00,000/- or more in respect of each party, have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

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

(vii) The Company has an internal audit system. In our opinion, the scope of audit needs to be widened to make it commensurate with the size of the Company and the nature of its business.

(viii) We are informed that the Central Government has prescribed maintenance of cost records under section 209(1) (d) of the Companies Act, 1956 for certain products in respect of which no manufacturing operations were carried out during the period.

(ix) In respect of statutory dues:

(a) The Company is generally regular in depositing with appropriate authorities undisputed statutory dues in respect of Wealth Tax, Service Tax, Excise Duty, Cess and any other statutory dues except Sales Tax, and Investor Education and Protection Fund.

According to the information and explanations given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March 2014fora period of more than six months from the date of becoming payable except as mentioned below: -

Sr. Name of the statute Nature of the Dues Amount No. (Rs in thousands)

1. Companies Act, 1956 Investor Education and Protection Fund 7

2. Foreign Trade (Development and Regulation Act, 1992) Custody Duty 74,009

3. Central sales Tax Act, 1956 and Sales Tax Act of various states. Sales Tax 22,412

4. The Bombay Provincial Municipal Corporation Act, 1949 Property Tax 43,180

5. indian Stamp Act, 1899 Stamp Duty 3,241

6. Central Excise Act, 1944 Excise Duty 2,596

7. income Tax Act, 1961 Income Tax 265

(b) The disputed statutory dues aggregating to Rs. 9,000 thousands, that have not been deposited on account of matters pending before appropriate authorities as under:-

Name of the Statute Nature of Amount of Dispute Period to the Dues (Net) Rs. In ''000 which it relates pending

Central sales Tax Act, 1956 and Sales Sales Tax 9,000 31.03.07 Act of various states. Authorities

Employees Provident Provident 2,417 2004-05 Fund Scheme, 1962 Funds

Name of the Statute Forum where dispute is Central sales Tax Act, Various Appellate 1956 and Sales /Judicial Act of various states. Authorities

Employees Provident Chief Commissioner Fund Scheme, 1962 Provident Fund

(x) The accumulated losses of the Company are more than fifty percent of its net worth. The company has incurred cash losses during the financial period covered by our audit and also incurred cash losses in the immediately preceding financial period.

(xi) The Company has not defaulted in repayment of dues to financial institution or banks or debenture holders.

(xii) In our opinion and according to the information and explanation given to us, no loans and advances have been granted by the Company on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/ society. Therefore, clause 4 (xiii) of the Companies (Auditor''s Report) Order 2003, is not applicable to the Company.

(xiv) in our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor''s Report) Order 2003 are not applicable to the Company.

(xv) As per information and explanation given to us, the Company had issued corporate guarantees of Rs. 43,348 thousands for loan taken, by Vaishu Engineering Industries Limited, from banks/financia! institutions. We are informed that the company was associate company at the time of issuing guarantees and the terms and conditions thereof where not prejudicial to the interest ofthe Company. .

(xvi) No term loans were raised by the Company during the period.

(xvii) The Company has incurred substantial losses and all its long term liabilities have been overdue leaving no long term resources with the Company. Consequently the Company''s short term funds have been utilized for long term purposes.

(xviii) During the period, 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) The Company has not issued any debentures, so the question of creation of securities in respect of debentures issued does not arise.

(xx) No public issue was made by the Company during the period.

(xxi) in our opinion and according to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the year that can have a material bearing on the financial position ofthe Company.

For S K Kavathekar & Co. Chartered Accountants Registration No, 104944W

S K Kavathekar Proprietor Membership No. 13720 Place : Mumbai bated : 30th May, 2014

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Jun 30, 2012

We have audited the attached Balance Sheet of SM Dyechem Limited, ("the Company") as at 30th June 2012, the Profit and Loss Account for the period ended on that date annexed thereto and the Cash Flow Statement for the period ended on that date. 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.

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 misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

1. As required by the Companies (Auditor''s Report) Order 2003, as amended by the Companies (Auditor''s Report) (Amended) Order 2004, (together the ''Order1) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956. we enclose in the Annexure hereto a statement on the matters specified in paragraphs 4 and 5 of the said Order.

2. Further to our comments in the Annexure referred to in paragraph 1 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 except the information in respect of dues to Micro, Smalt and Medium Enterprises which qualify under the definition of medium and small enterprises, as defined under Micro, Small and Medium Enterprises Development Act, 2006 in respect of which necessary information is not available with the Company as referred to in Note No. 2.21;

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

c) the Balance Sheet, Profit and Loss Account and Cash Flow statement death with by this report are in agreement with the books of account;

d) in our opinion the Balance Sheet and Profit & Loss Account dealt with by this report comply with the accounting standards referred in sub-section (3C) of section 211 of the Companies Act, 1956;

e) on the basis of written representation received from the directors as on 30th June 2012 and taken on record by the Board of Directors, we report that none of the directors are disqualified as on 301” June 2012 from being appointed as a directors in terms of clause ''g'' of Sub-section (1) of section 274 of the Companies Act, 1956 (Refer Note No. 2.22) r) Attention is drawn to Note No. 2.1£ regarding the losses incurred by the Company resulting in its liabilities exceeding its Assets. However the Company has prepared it accounts on “Going Concern Basis" as explained in the Note No. 2.18. As there is considerable uncertainty for the Company to continue as a “Going Concern" in foreseeable future, we are unable to express our view on the above. y No provision has been considered for losses (if any) on account of corporate guarantees amounting to Rs. 43448 thousands issued by the Company in favor of the banks/institutions for other (Refer Note No. 2.29(a)). hj Subject to the comments made in Para (a), (f) and (g) above, in our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the significant accounting policies and other notes thereon, give the information required by the Companies Act, 1956, in the manner so required, and present a true and fair view, in conformity with the accounting principles generally accepted in India; -

I) in so far as it relates to the Balance Sheet, of the state of affairs of the Company as at 30th June 2012; and

ii) in so far as it relates tq the Profit & Loss Account, of the Loss of the Company for the period ended on that date.

iii) in so far as it relates to the Cash Flow Statement, of the Cash Flows of the Company for the period ended on that date.

Referred to in Paragraph 1 of our report of even date to the members of SM Dyechem Limited, (the Company'') on the financial statement for the period ended as on 30* June 2012 we report that:

(i) In respect of its Fixed Assets: -

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

(b) We are informed that most of the fixed assets have been physically verified by the » management during the period and that no material discrepancies were noticed on such physical verification. In our opinion, the frequency of such verification is reasonable having regards to the size of the Company and nature of its assets.

(c) In our opinion, the Company has not disposed off a substantial part of fixed assets during the period.

(ii) In respect of its Inventories: -

There were no stock as on 01st June 2012. however the Company has followed the stock verification procedures as mentioned in (a), (b) and (c) below, during the period:

(a) The closing stock of goods have been physically verified du ring the period by the management. In our opinion, the frequency of such verification is reasonable.

(b) The procedures of physical verification of stocks followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The Company has maintained proper records of inventories. As explained to us, the discrepancies noticed on verification between the physical stocks and book records were not material in relation to the operations of the Company and the same have been property dealt with in the books of account.

(iii) In respect of secured /unsecured town granted/taken to/ from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956 :-

(a) During the period the Company has not granted any unsecured/secured loans to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(b) The Company has not taken any unsecured/secured loans from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(iv) In our opinion and according to the information and explanations given to us. there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of stores, raw materials including components, plant and machinery, equipment and other assets and for the sale of goods. During the course of our audit, we have not observed any major weaknesses in internal controls.

(iv) In respect of particulars of contracts or arrangements and transactions entered in the register maintained in pursuance of section 301 of the Companies Act 1956: -

(a) In our opinion and according to the information and explanations given to us, the transaction made in pursuance of contracts or arrangements, that needed to be entered into the register maintained under Section 301 of the Companies Act, 1956 have been so entered.

(b) In our opinion and according to the information and explanations give to us, these transactions of purchase of goods & material and sale of goods, material & services made in pursuance of contracts or arrangement required to be entered into the register maintained under Section 301 of the Companies Act, 1956 aggregating during the period to Rs.5,00,000/- or more in respect of each party, have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

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

(vii) The Company has an internal audit system. In our opinion, the scope of audit needs to be widened to make it commensurate with the size of the Company and the nature of its business.

(viii) We are informed that the Central Government has prescribed maintenance of cost records under section 209(1) (d) of the Companies Act, 1956 for certain products in respect of which no manufacturing operations were carried out during the period.

(ix) I n respect of statutory dues:

(a) The Company is generally regular in depositing with appropriate authorities undisputed statutory dues in respect of Wealth Tax, Service Tax, Excise Duty, Cess and any other statutory dues except Sales Tax, and Investor Education and Protection Fund.

According to the information and explanations given to us. no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2011 for a period of more than six months from the date of becoming payable except as mentioned below: -

Sr. Name of the statute Nature of the Dues Amount No. (Rs in thousands)

1. Companies Act, 1956 Investor Education and Protection Fund 7

2. Foreign Trade (Development and Regulation Act, 1992) Custody Duty # 74,009

3. Central sales Tax Act. 1956 and Sales Tax Act of various states. Sales Tax # 22.350

4. The Bombay Provincial Municipal Corporation Act. 1949 Property Tax # 43,180

5. Indian Stamp Act. 1899 Stamp Duty # 3,241

6. Central Excise Act. 1944 Excise Duty # 2,596

7. Income Tax Act, 1961 Income Tax 211

Note: # Out of the above statutory dues, an amount of Rs. 1,23,026 thousands related to specific properties/business divisions, have been transferred to those companies, which had purchased the specific properties/business divisions from the Company under the Securitisation and Reconstructions of the Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ACT) during the period ended September 30,2006.

(b) The disputed statutory dues aggregating to Rs. 9.000 thousands, that have not been _deposited on account of matters pending before appropriate authorities as under:-

Name of the Statute Nature of the Dues Amount of Dispute Period to which Forum where (Net) Rs. In 000 it relates dispute is pending

Centra/ sales Tax Act, Various AppeJfate 1956 and Sales Tax / Judicial Act of various states. Sales Tax 9,000 31.03.07 Authorities



(x) The accumulated losses of the Company are more than 50% of its net worth. The company has incurred cash losses during the financial year covered by our audit and also incurred cash losses in the immediately preceding financial year.

(xi) The Company has not defaulted in repayment of dues to financial institution or banks or debenture holders.

(xii) In our opinion and according to the information and explanation given to us. no loans and advances have been granted by the Company on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/ society. Therefore, clause 4 (xiii) of the Companies (Auditor''s Report) Order 2003, is not applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor''s Report) Order 2003 are not applicable to the Company.

(xv) As per information and explanation given to us, the Company had issued corporate guarantees of Rs. 43.348 thousands for loan taken, by Vaishu Engineering Industries Limited, from banks/financial institutions. We are informed that the company was associate company at the time of issuing guarantees and the terms and conditions thereof where not prejudicial to the interest of the Company.

(xvi) No term loans were raised by the Company during the period.

(xvii) The Company has incurred substantial losses and all its long term liabilities have been overdue leaving no long term resources with the Company. Consequently the Company''s short term funds have been utilized for long term purposes.

(xviii) During the period, 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) The Company has not issued any debentures, so the question of creation of securities in respect of debentures issued does not arise.

(xx) No public issue was made by the Company during the period.

(xxi) In our opinion and according to the information And explanations given to us. No fraud nor by the company has been noticed or reported during the period that can have a material bearing on the financial position of the Company.

For S K Kavathekar & Co.

Chartered Accountants

Registration No. 104944W

S K Kavathekar

Proprietor

Membership No. 13720

Place : Mumbai

Dated : 30th August 2012

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Mar 31, 2011

We have audited the attached Balance Sheet of SM Dyechem Limited, ("the Company") as at 31st March 2011, the Profit and Loss Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date. 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.

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 misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

1. As required by the Companies (Auditor's Report) Order 2003, as amended by the Companies {Auditor's Report) (Amended) Order 2004, {together the 'Order1) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure hereto a statement on the matters specified in paragraphs 4 and 5 of the said Order.

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

a) we have obtained at the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit except the information in respect of dues to Micro, Small and Medium Enterprises which qualify under the definition of medium and small enterprises, as defined under Micro, Small and Medium Enterprises Development Act, 2006 in respect of which necessary information is not available with the Company as referred to in Note No. 7 of Part B of Schedule ")";

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

c) the Balance Sheet, Profit and Loss Account and Cash Flow statement dealt with by this report are in agreement with the books of account;

d) in our opinion the Balance Sheet and Profit & Loss Account dealt with by this report comply with the accounting standards referred in sub-section (3C) of section 211 of the Companies Act, 1956;

e) on the basis of written representation received from the directors as on 31st March, 2011 and taken on record by the Board of Directors, we report that none of the directors are disqualified as on 31st March, 2011 from being appointed as a directors in terms of clause 'g' of Sub-section (1) of section 274 of the Companies Act, 1956 Refer Note No. 8 of Part B of Schedule V";

f) Attention is drawn to Note No. 3 of Part 8 of Schedule "J" regarding the losses incurred by the Company resulting in its liabilities exceeding its Assets. However the Company has prepared it accounts on "Going Concern Basis" as explained in the Note No. 3 of Part 8 of Schedule °J". As there is considerable uncertainty for the Company to continue as a "Going Concern" in foreseeable future, we are unable to express our view on the above.

g) No provision has been considered for losses (if any) on account of corporate guarantees amounting to Rs.43448 thousands issued by the Company in favor of the banks/institutions for other (Refer Note No. 13(a) Part 8 of Schedule "J").

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

i) in so far as it relates to the Balance Sheet, of the state of affairs of the Company as at 31st March,2011, and

ii) in so far as it relates to the Profit & Loss Account, of the Loss of the Company for the year ended on that date.

iii) in so far as it relates to the Cash Flow Statement, of the Cash Flows of the Company for the year ended on that date.

ANNEXURE TO AUDITORS' REPORT

Referred to in Paragraph 1 of our report of even date to the members of SM Dyechem Limited, (the Company') on the financial statement for the year ended as on 31st March, 2011 we report that:

(i) In respect of its Fixed Assets: -

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

(b) We are informed that most of the fixed assets have been physically verified by the management during the year and that no material discrepancies were noticed on such physical verification. In our opinion, the frequency of such verification is reasonable having regards to the size of the Company and nature of its assets.

(c) In our opinion, the Company has not disposed off a substantial part of fixed assets during the year.

(ii) In respect of its Inventories: -

There were no stock as on 31st March 2011, however the Company has followed the stock verification procedures as mentioned in (a), (b) and (c) below, during the year: -

(a) The closing stock of goods have been physically verified during the year by the management. In our opinion, the frequency of such verification is reasonable.

(b) The procedures of physical verification of stocks followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The Company has maintained proper records of inventories. As explained to us, the discrepancies noticed on verification between the physical stocks and book records 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) In respect of secured /unsecured loan granted/taken to/ from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956 :-

(a) During the year the Company has not granted any unsecured/secured loans to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(b) The Company has not taken any unsecured/secured loans from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of stores, raw materials including components, plant and machinery, equipment and other assets and for the sale of goods. During the course of our audit. we have not observed any major weaknesses in internal controls.

(iv) tn respect of particulars of contracts or arrangements and transactions entered in the register maintained in pursuance of section 301 of the Companies Act 1956: -

(a) In our opinion and according to the information and explanations given to us, the transaction made in pursuance of contracts or arrangements, that needed to be entered into the register maintained under Section 301 of the Companies Act, 1956 have been so entered.

(b) )n our opinion and according to the information and explanations give to us, these transactions of purchase of goods & material and sale of goods, material & services made in pursuance of contracts or arrangement required to be entered into the register maintained under Section 301 of the Companies Act, 1956 aggregating during the year to Rs.5,00,000/- or more in respect of each party, have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

(vi) The Company has not accepted any deposits from the public within the meaning of Section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed there under

(vii) The Company has an internal audit system. In our opinion, the scope of audit needs to be widened to make it commensurate with the size of the Company and the nature of its business.

(viii) We are informed that the Central Government has prescribed maintenance of cost records under section 209(1) (d) of the Companies Act, 1956 for certain products in respect of which no manufacturing operations were carried out during the year.

(ix) In respect of statutory dues:

(a) The Company is generally regular in depositing with appropriate authorities undisputed statutory dues in respect of Wealth Tax, Service Tax, Excise Duty, Cess and any other statutory dues except Provident Fund, Employees' State Insurance, Income Tax, Sales Tax. and Investor Education and Protection Fund. According to the information and explanations given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2011 for a period of more than six months from the date of becoming payable except as mentioned below: -

Sr. Name of the statute Nature of the Dues Amount No. (Rs in thousands)

1. Companies Act, 1956 Investor Education and Protection Fund 7

2. Foreign Trade (Development and Regulation Act, 1992) Custody Duty # 74,009

3. Central sates Tax Act, 1956 and Sales Tax Act of various states. Sales Tax # 22,350



4. The Bombay Provincial Municipal Corporation Act, 1949 Property Tax # 43,180



5. Indian Stamp Act, 1899 Stamp Duty # 3,241



6. Central Excise Act, 1944 Excise Duty # 2,596

7. Income Tax Act, 1961 Income Tax 211

Note: # Out of the above statutory dues, an amount of Rs.1,23,026 thousands related to specific properties/business divisions, have been transferred to those companies, which had purchased the specific properties/business divisions from the Company under the Securitisation and Reconstructions of the Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ACT) during the period ended September 30,2006. (b) The disputed statutory dues aggregating to Rs.9,000 thousands, that have not been deposited on account of matters pending before appropriate authorities as under:-

Name of the Nature of the Amount of Period to which Forum where Statute Dues Dispute it relates dispute is (Net) Rs.In Pending '000 Central Sales Tax 9,000 31.03.07 Various sales Tax Appellate Act, 1956 /Judicial and Sales Authorities Tax Act of various states.

(x) The accumulated losses of the Company are more than 50% of its net worth. The company has incurred cash losses during the financial year covered by our audit and also incurred cash losses in the immediately preceding financial year.

(xi) The Company has not defaulted in repayment of dues to financial institution or banks or debenture holders.

(xii) In our opinion and according to the information and explanation given to us, no loans and advances have been granted by the Company on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/natural benefit fund/ society. Therefore, clause 4 (xiii) of the Companies (Auditor's Report) Order 2003, is not applicable to the Company.

(xi) In our opinion, the Company Is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor's Report) Order 2003 are not applicable to the Company.

(xii) As per information and explanation given to us, the Company had issued corporate guarantees of Rs.43,348 thousands for loan taken, by Vaishu Engineering Industries Limited, from banks/financial institutions. We are informed that the company was associate company at the time of issuing guarantees and the terms and conditions thereof where not prejudicial to the interest of the Company.

(xiii) No term loans were raised by the Company during the year. (xiv) The Company has incurred substantial losses and all its long term liabilities have been overdue leaving no long term resources with the Company. Consequently the Company's short term funds have been utilized for long term purposes.

(xv) During the year, 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.

(xvi) The Company has not issued any debentures, so the question of creation of securities in respect of debentures issued does notaries.

(xvii) No public issue was made by the Company during the year.

(xviii) In our opinion and according to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the year that can have a material bearing on the financial position of the Company.



For S K Kavathekar & Co.

Chartered Accountants

Registration No. 104944W

S K Kavathekar

Proprietor

Membership No. 13720

Place : Mumbai

Dated : 28th July 2011