ఆడిటర్ నివేదిక Khatau Makanji Spinning & Weaving Company Ltd.

Mar 31, 2014

We have audited the accompanying financial statements of The Khatau Makanji Spinning and Weaving Company Limited ("the Company"), which comprise the Balance Sheet as at 31st March, 2014, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

The Company''s Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in Section 211 (3C) 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 fair presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors'' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the 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 the disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements.

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

Basis for Qualified Opinion

i) An Unsecured Loan which was received from the party appointed as per the Company''s sanctioned scheme under BIFR for settlement of creditors, and remaining outstanding at the end of the accounting year amounting to Rs 6,260,283 is subject to reconciliation and confirmation. Hence we are unable to ascertain the exact liability which may arise on this account.

ii) The Company''s preference shares amounting to Rs 29,92,500 have not been redeemed by 22-02-2012 as per the company''s sanctioned scheme under BIFR, vide its order dated 22-02-2007.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion Paragraph, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

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

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

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

Report on Other Legal and Regulatory Requirements

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

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

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

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

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

(d) In our opinion, the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement comply with the Accounting Standards notified under the 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.

e) On the basis of the written representations received from the Directors as on 31st March, 2014 taken on record by the Board of Directors, none of the Directors are disqualified as on 31st March, 2014 from being appointed as a Director in terms of Section 274(1 )(g) of the Act.

ANNEXURE Re : The Khatau Makanji Spinning and Weaving Company Limited Referred to in paragraph 1 of our report of even date.

i. a) The Company is maintaining proper records showing full particulars including quantitative details and situation of its fixed assets except Furniture and Fixtures and Office Equipments.

b) These fixed assets have been physically verified by the management and no material discrepancies were noticed.

c) The Company has not disposed off substantial parts of its fixed assets during the year.

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

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

c) On the basis of our examination of the records of inventory, we are of the opinion that the company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material.

iii. (a) to (d) The Company has granted an interest free advance to a company covered in the Register maintained under Section 301 of the Companies Act, 1956. There are no terms of repayment. In respect of the said advance, the maximum balance outstanding at any time during the year is Rs. 6,539 and the year ended balance is Rs. 6,539.

(e) to (g) The Company has taken interest free loans from a director and from 3 companies covered in Register maintained under Section 301 of the Companies Act, 1956. The maximum balance outstanding during the year was Rs 422,332 and the year end balance of loans taken from parties was Rs. 422,332. There are no terms for repayment.

iv. We are informed by the management that Internal control systems commensurate with the size and nature of its business will be introduced by the Company as and when the proposed comprehensive Rehabilitation Scheme at Mahad is implemented.

v. a) According to the information and explanations given to us, we are of the opinion that the particulars of all contracts or arrangements that need 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 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. The Company has not accepted any deposits from the public to which the provisions of Section 58A, 58AAor any other relevant provisions of the Companies Act, 1956 and the rules framed there under would apply.

vii. The Company has no Internal Audit System.

viii. As there is no production of processed goods during the year under audit, there is no question of maintenance of Cost Records U/s. 209(1 )(d) of Companies Act, 1956.

ix. a) The company is generally regular in depositing undisputed statutory dues with the appropriate authorities.There are no outstanding statutory dues as at the last day of the financial year which were outstanding for a period of more than six months from the date they became payable.

b) There are no disputed statutory liabilities not paid by the Company.

x. Accumulated losses of the Company are more than fifty percent of its net worth. The Company has not made cash loss during the year or in the immediately preceding financial year.

xi. As the Company has not availed any loan from a financial institution or a bank, nor has it issued any debentures, there are no dues to any financial institution or bank or debenture holders.

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

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

xiv. In our opinion, the company is not dealing in or trading in shares, securities, debentures and any other investments. Accordingly, the provisions of clause 4 (xiv) of the aforesaid Order are not applicable to the company.

xv. In our opinion and according to the information and explanation given by the management, the company has not given any guarantees for loans taken by others from banks or financial institutions.

xvi. The Company has not taken any term loan during the year. Therefore, the provisions of clause 4 (xvi) of the Order are not applicable.

xvii. There were no short term funds raised during the year. Therefore, the provisions of clause 4 (xvii) of the Order are not applicable.

xviii. According to the information and explanation given to us and the records examined by us, 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.

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

xx. No public issue was made by the company during the year.

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

For SORAB S. ENGINEER & CO. Chartered Accountants Firm Registration No. 110417W

CA M. P. ANTIA PARTNER MEMBERSHIP NO. 7825

Date : 28th April, 2014 '' Place: Mumbai

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Mar 31, 2013

Report on the Financial Statements

1. We have audited the accompanying financial statements of The Khatau Makanji Spinning and Weaving Company Limited ("the Company"), which comprise the Balance Sheet as at 31s1 March, 2013, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

2. The Company''s Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors'' Responsibility

3. 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.

4. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements.

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

Basis for Qualified Opinion

6. i) An Unsecured Loan which was received from the party appointed as per the Company''s sanctioned scheme under BIFR for settlement of creditors, and remaining outstanding at the end of the accounting year amounting to Rs 6,260,283 is subject to reconciliation and confirmation. Hence we are unable to ascertain the exact liability which may arise on this account.

ii) The Company''s preference shares amounting to Rs 29,92,500 have not been redeemed by 22.2.2012 as per the company''s sanctioned scheme under BIFR, vide its order dated 22.2.2007.

Qualified Opinion

7. In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2013;

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

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

Report on Other Legal and Regulatory Requirements

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

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

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

(b) In our opinion 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.

(c) The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.

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

(e) On the basis of the written representations received from the Directors as on 31" March, 2013 taken on record by the Board of Directors, none of the Directors are disqualified as on 31st March, 2013 from being appointed as a Director in terms of Section 274(1)(g) of the Act.

ANNEXURE

Re : The Khatau Makanji Spinning and Weaving Company Limited

Referred to in paragraph 8 of our report of even date.

i. a) The Company is maintaining proper records showing full particulars including quantitative details and situation of its fixed assets except Furniture and Fixtures and Office Equipments.

b) These fixed assets have been physically verified by the management and no material discrepancies were noticed.

c) The Company has not disposed off substantial parts of its fixed assets during the year.

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

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

c) On the basis of our examination of the records of inventory, we are of the opinion that the company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material.

iii. (a) to (d) The Company has granted an interest free advance to a company covered in the Register maintained under Section 301 of the Companies Act, 1956. There are no terms of repayment. In respect of the said advance, the maximum balance outstanding at any time during the year is Rs. 6,539 and the year end balance is Rs. 6,539.

(e) to (g) The Company has taken interest free loans from a director and from 3 companies covered in Register maintained under Section 301 of the Companies Act, 1956. The maximum balance outstanding during the year was Rs. 422,332 and the year end balance of loans taken from parties was Rs. 422,332. There are no terms for repayment.

iv. We are informed by the Management that internal control systems commensurate with the size and nature of its business will be introduced by the Company as and when the proposed comprehensive Rehabilitation Scheme at Mahad is implemented.

v. a) According to the information and explanations given to us, we are of the opinion that the particulars of all contracts or arrangements that need 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 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. The Company has not accepted any deposits from the public to which the provisions of Section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed there under would apply.

vii. The Company has no Internal Audit System.

viii. As there is no production of processed goods during the year under audit, there is no question of maintenance of Cost Records U/s.209(1)(d) of Companies Act, 1956.

ix. a) The company is generally regular in depositing undisputed statutory dues with the appropriate authorities, though there have been serious delays in cases of payment of Service Tax on legal services and security services received. There are no outstanding statutory due, as at the last day of the financial year which were outstanding for a period of more than six months from the date they became payable. b) There are no disputed statutory liabilities not paid by the Company.

x. Accumulated losses of the Company are more than fifty percent of its net worth. The Company has not made cash loss during the year or in the immediately preceding financial year.

xi. As the Company has not availed any loan from a financial institution or a bank, nor has itissued any debentures, there are no dues to any financial institution or bank or debenture holders.

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

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

xiv. In our opinion, the company is not dealing in or trading in shares, securities, debentures and any other investments. Accordingly, the provisions of clause 4 (xiv) of the aforesaid Order are not applicable to the company.

xv. In our opinion and according to the information and explanation given by the management, the company has not given any guarantees for loans taken by others from banks or financial institutions.

xvi. The Company has not taken any term loan during the year. Therefore, the provisions of clause 4 (xvi) of the Order are not applicable.

xvii. There were no short term funds raised during the year. Therefore, the provisions of clause 4 (xvii) of the Order are not applicable.

xviii. According to the information and explanation given to us and the records examined by us, 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.

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

xx. No public issue was made by the company during the year.

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

For SORAB S. ENGINEER & CO.

Chartered Accountants

Firm Registration No. 110417W

M. P. ANTIA

Place: Mumbai PARTNER

Date : 29th May, 2013 MEMBERSHIP No. 7825

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Mar 31, 2012

1. We have audited the attached Balance Sheet of Khatau Makanji Spinning and Weaving Company Limited, as at 31st March, 2012, and also the Statement of Profit and Loss of the Company 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, issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act 1956, as amended by the Companies (Auditor's Report) (Amendment) Order, 2004, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

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

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

b) In our opinion 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, the Statement of Profit and Loss and Cash Flow Statement dealt with by the report are in agreement with the Books of Account.

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

e) On the basis of written representations received from the Directors as on 31s1 March, 2012, and taken on record by the Board of Directors, we report that none of the Directors are disqualified as on 31st March, 2012 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

f) Attention is invited to the following:-

i) An amount ofRs 20,000,000 which was received from the party appointed as per the Company's sanctioned scheme under BIFR for settlement of creditors, has been refunded back to the same party during the year. This amount was lying unutilized. The Company refunded this amount to the party, on the party's request as they were temporarily short of funds. We are

unable to ascertain and confirm the same. The party balance outstanding at the end of the - accounting year amounting to Rs 6,260,283 is subject to reconciliation and confirmation. Hence we are unable to ascertain the exact liability which may arise on this account.

ii) The Company's preference shares amounting to Rs 29,92,500 have not been redeemed by 22.2.2012 as per the company's sanctioned scheme under BIFR, vide its order dated 22.2.2007.

5. Subject to what has been mentioned in Paragraph (f) above, and our comments in Annexure referred to in Paragraph 3, in our opinion and to the best of our information and according to the explanations given to us, the Accounts read together with notes thereon 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 Profit for the year ended on that date.

(iii) In case of the Cash Flow Statement of the cash flows of the Company for the year ended on that date.

ANNEXURE

Re: The Khatau Makanji Spinning and Weaving Company Limited

Referred to in paragraph 3 of our report of even date.

i. a) The Company is maintaining proper records showing full particulars including quantitative details

and situation of its fixed assets except Furniture and Fixtures and Office Equipments.

b) These fixed assets have been physically verified by the management and no material discrepancies were noticed. .

c) The Company has not disposed off substantial parts of its fixed assets during the year.

ii. a) The inventory has been physically verified during the year by the management. In our opinion, the

freouencv of verification is reasonable.

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

c) On the basis of our examination of the records of inventory, we are of the opinion that the company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material.

iii. (a) to (d) The Company has granted an interest free advance to a company covered in the Register

maintained under Section 301 of the Companies Act, 1956. There are no terms of repayment, in respect of the said loan, the maximum balance outstanding at any time during the year is Rs. 50,000 and the year end balance is Rs. 50,000.

(e) to (g) The Company has taken interest free loans from a director and from 3 companies covered in Register maintained under Section 301 of the Companies Act, 1956. Maximum balance outstanding during the year was Rs. 422,331. The year end balance of loans taken from parties was Rs. 422,331 There are no terms for repayment. .

iv. We are informed by the Management that internal control systems commensurate with the size and nature of its business will be introduced by the Company as and when the proposed comprehensive Rehabilitation Scheme at Mahad is implemented.

v. a) According to the information and explanations given to us, we are of the opinion that the particulars

of all contracts or arrangements that need 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 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. The Company has not accepted any deposits from the public to which the provisions of Section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed there under would apply.

vii. The Company has no Internal Audit System.

viii. As there is no production of processed goods during the year under audit there is no question of maintenance of Cost Records U/s.209(1)(d) of Companies Act, 1956.

ix. a) The company is regular in depositing undisputed statutory dues with the appropriate authorities,

except for the following statutory due, as at the last day of the financial year which was outstanding for a period of more than six months from the date it has become payable. ,

Particulars Amount in Rupees

Gram Panchayat Tax 353,006

b) There are no disputed statutory liabilities not paid by the Company.

x. Accumulated losses of the Company are more than fifty percent of its net worth. The Company has not made cash loss during the year or in the immediately preceding financial year.

xi. There are no dues to Financial Institutions and Banks.

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

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

xiv. In our opinion, the company is not dealing in or trading in shares, securities, debentures and any other investments. Accordingly, the provisions of clause 4 (xiv) of the aforesaid Order are not applicable to the company.

xv. In our opinion and according to the information and explanation given by the management, the company has not given any guarantees for loans taken by others from banks or financial institutions.

xvi. The Company has not taken any term loan during the year. Therefore, the provisions of clause 4 (xvi) of the Order are not applicable.

xvii. There were no short term funds raised during the year. Therefore, the provisions of clause 4 (xvii) of the Order are not applicable. ‘

xviii. According to the information and explanation given to us and the records examined by us, 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.

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

xx. No public issue was made by the company during the year.

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

For SORAB S. ENGINEER & CO.

Chartered Accountants Firm Registration No. 110417W M.P.ANTIA

Place: Mumbai PARTNER

Date : 25th June 2012 MEMBERSHIP

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Mar 31, 2010

1. We have audited the attached balance sheet ot Khatau Makanji Spinning and Weaving Company Limited, as at 31st March, 2010, and also the profit and loss account and the cash flow statement for the year ended on thai date annexed thereon. 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 of our opinion.

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

4. Further to our comments in the Annexure referred to 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 purpose of our audit

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 the books

c) The Balance Sheet, the Profit and Loss Account and Cash Flow Statement dealt with by the report are in agreement with the Books of Account.

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

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

5. In our opinion and to the best of our information and according to the explanations given to us, the Accounts read together with notes thereon 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 Balance Sheet of the state of affairs of the Company as at 31st March, 2010.

(ii) In the case of Profit and Loss Account of the loss for the year ended on that date.

(iii) In case of the Cash Flow statement of the cash flows of the Company for the year ended on that date.

Annexure Re: The Khatau Makanji Spinning and Weaving Company Limited Referred to in paragraph 3 of our report of even date.

1. a) The Company is maintaining proper records showing full particulars including quantitative details and situation of its fixed assets.

b) These fixed assets have been physically verified by the management and no material discrepancies were noticed.

c) The Company has not disposed substantial parts of its fixed assets during the year.

2. Closing stock of goods traded in have been physically verified by the management. No discrepancies were noticed on such verification.

3. a) The Company has not given any loans during the year.

b) The Company has taken interest free loan from a director and from companies in which directors are interested. There are no terms for repayment.

4. Internal control systems commensurate with the size and nature of its business will be introduced by the Company as and when the proposed comprehensive Rehabilitation Scheme at Mahad is implemented.

5. There are no contracts or arrangements, except loan taken from Directors and Companies in which directors are interested, which need to be entered in Register maintained under section 301 of Companies Act, 1956.

6. There are no outstanding Fixed Deposits from Public at the end of the year.

7. The Company has no internal Audit System.

8. The Company has suspended Manufacturing Activities and no such activity was conducted during the year under Audit. Hence there was no question of maintenance of Cost Records U/s. 209(1 )(d) of Companies Act, 1956.

9. a) The Company is regular in depositing statutory dues with appropriate authorities. b) There are no disputed statutory liabilities not paid by the Company.

10. Accumulated losses of the Company are more than fifty percent of its net worth. The Company has not made cash loss during the year.

11. There are no dues to Financial Institutions and Banks.

12. The Company has not granted any loans and Advances on the basis of Security by way of pledge of shares, debentures and other securities.

13. In our opinion, the company is not a chit fund or nidhi/mutual benefit fund/society. Therefore, the provisions of clause 4 (xiii) of the Companies (Auditors Report) Order, 2003 are not applicable to the company.

14. 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 aforesaid Order are not applicable to the company.

15. As per explanation given to us the company has not given any guarantees for loans taken by others.

16. The Company has not taken any term loan during the year.

17. There were no short term funds raised during the year.

18. The Company has not issued any shares during the year.

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

20. No public issue was made by the company during the year.

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

For SORABS. ENGINEER & CO.

CHARTERED ACCOUNTANTS

Firm Registration No.110417W

sd/-

M.P.ANTIA

(PARTNER)

MEMBERSHIP NO. 7825.

Place : Mumbai

Date :12th July 2010