ఆడిటర్ నివేదిక Modern Denim Ltd.

Mar 31, 2025

1. We have audited the accompanying Standalone Financial Statements
of MODERN DENIM LIMITED (“the Company”) which comprise
the Balance Sheet as at 31^st March 2025, the Statement of Profit and
Loss (including other Comprehensive Income), the Statement of Changes
in Equity, the Statement of Cash Flow for the year then ended and notes
to the financial statements, including a summary of material accounting
policies and other explanatory information (hereinafter referred to as
“Standalone Financial Statements”).

2. 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 section of our report, the aforesaid
standalone financial statements give the information required by the
Companies Act, 2013 (“the Act”) in the manner so required and give a
true and fair view in conformity with the Indian Accounting Standards
prescribed under section 133 of the Act read with the Companies (Indian
Accounting Standards) Rules, 2015, as amended, (“Ind AS”) and other
accounting principles generally accepted in India, of the state of affairs
of the Company as at March 31, 2025, its Loss, Other Comprehensive
Income, its Cash Flows and Changes in Equity for the year ended on
that date.

Basis for Qualified Opinion

3. The Company has not recognised Dividend on cumulative redeemable
preference share on effective interest method as required by Ind AS 109
“Financial Instruments”. Dividend on cumulative redeemable preference
shares amounting to ? 110.75 Lakhs for the year (Previous year ? 110.75
Lakhs) has not been provided (Note No. 27.3). The total amount of
Dividend on cumulative redeemable preference shares not provided till
31st March 2025 amounts to ? 3780.86 Lakhs (up to previous Balance
Sheet date ? 3670.11 Lakhs) including Dividend Distribution Tax
Payable thereon of ? 569.12 Lakhs (Note No. 13.2). Had the Company
provided interest on financial liabilities in current year, Finance Cost &
Loss for the year would have been higher by ? 110.75 Lakhs and Other
Current Financial Liabilities & debit balance of Retained Earning under
the head Other Equity would have been higher by ? 3780.86 Lakhs
(upto previous Balance Sheet date ? 3670.11 Lakhs). A similar
qualification had been given in the previous year’s Auditor’s Report.

4. The company has not recognised interest in respect of certain Secured
and Unsecured Borrowings on effective interest method as required by
Ind AS 109 “Financial Instruments”. Interest on certain Secured and
Unsecured Borrowings amounting to ? 57.47 Lakhs for the year
(Previous year ? 123.46 Lakhs) (Note No. 27.1, & 27.2) has not been
provided. Had the Company provided interest on certain Secured and
Unsecured Borrowings in current year, Finance Cost & Loss for the
year would have been higher by ? 57.47 Lakhs (previous year ? 123.46
Lakhs) and Other Current Financial Liabilities & debit balance of
Retained Earning under the head Other Equity would have been higher
by ? 2357.79 Lakhs (upto previous Balance Sheet date ? 2300.32 Lakhs).
A similar qualification had been given in the previous year’s Auditor’s
Report.

5. The Company has not measured Non-Current Borrowing of ? 6984.00
Lakhs (P.Y. ? 6374.00 Lakhs) initially at fair value as required by Ind
AS 109 “Financial Instruments”. Had the Company fair valued the
same; Interest Income, Finance Cost & Non-current Borrowings would
have been higher and Other Current Finance Liabilities would have
been lower by ? 517.63 Lakhs (Previous year ? 441.13 Lakhs). However,
there is no effect in Statement of Profit & Loss for the year as well as

Debit balance of Other Equity (Refer Note no. 13.5, 22.1 & 27.4). A
similar qualification had been given in the previous year’s Auditor’s
Report.

6. As a Consequence of the matters reported at para 3 to 5 above, non¬
compliance the explicit and unreserved statement of the compliance
with Ind AS as stated in note no.1A(a) is not in accordance with Ind
AS-1" Presentation of Financial Statements”.

7. We conducted our audit in accordance with Standards on Auditing (SAs)
specified under section 143(10) of the Companies Act, 2013. Our
responsibilities under those Standards are further described in the
Auditor’s Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in accordance
with the Code of Ethics issued by the Institute of Chartered Accountants
of India together with the ethical requirements that are relevant to our
audit of the financial statements under the provisions of the Companies
Act, 2013 and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the ICAI’s Code of Ethics. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our qualified opinion.

Material uncertainty related to Going Concern

8. We draw attention to Note 42 of the standalone financial statements
disclosing the material uncertainties that may affect the company from
being able to continue as a going concern which are as under.

a. BIFR had declared the company as a sick company and after
abatement of BIFR, Scheme of Compromise, Arrangement and
Amalgamation u/s 230-232 of the Companies Act, 2013 is under
process of approvals from concerned authorities.

b. Company’s net worth is fully eroded and has a negative net worth of
? 6639.80 Lakhs (Previous year ? 6071.20 Lakhs). The company
has neither the intention to liquidate nor the intention to cease its
operation nor is compelled to do so. The financial statements have,
therefore, been prepared on going concern basis. Our opinion is not
qualified in respect of this matter.

Emphasis of Matters

9. Emphasis of Matters are as under

(a) As described in Note 12.1, 13.1, 13.2, 16.2, 16.4, 18.2 & 18.3 to
the Standalone Financial Statement, on the basis of Expert opinion
obtained by the company, the amounts of Equity Share application
money pending for allotment, Cumulative Redeemable Preference
share, Non-Convertible Debenture (NCD) and interest accrued on
NCD, are not required to be transferred to Investor Education
Protection Fund (IEPF).

Our opinion is not qualified in respect of this matter.

(b) As described in Note 16.4 & 18.4 to the Standalone Financial
Statement, the company has filed

Scheme of Compromise, Arrangement and Amalgamation u/s 230¬
232 of the Companies Act, 2013 seeking the waiver/relief for
repayment of public fixed deposit and interest accrued thereon. Based
on the expected relief from NCLT and Expert opinion taken by the
company, the company considers no amount as due to be transferred
to IEPF.

Our opinion is not qualified in respect of this matter.

Key Audit Matters

10. Key audit matters are those matters that, in our professional, judgment,
were of most significance in our audit of the, Standalone Financial
Statements of the current period. These matters were addressed in the
context of our audit, of the Standalone Financial Statements as a whole,
and in forming our opinion thereon, and we do not provide a separate
opinion, on these matters.

11. Key audit matter identified in our audit in respect of Valuation and
Existence of High Inventory Levels as follows:

[Refer Note 1 A(g) , 5 & 24]

Sr. No.	Name of Components	Key audit matter	How our audit addressed the key audit matter
1.	Valuation and Existence of High Inventory Levels	As at 31.03.2025, the Company has reported inventories amounting to ^ 19.47 crores, as disclosed in Note 5 to the financial statements which is almost 52% of Total Assets. This represents a significant portion of the Company’s total assets. The inventories primarily comprise [e.g., raw materials, work-in-progress, and finished goods]. The valuation of inventories involves significant management judgment, particularly in assessing net realizable value, identifying obsolete or slow-moving items, and applying appropriate costing methodologies. In addition, the existence of such a substantial inventory balance requires robust controls around stock verification and reconciliation. We considered this a key audit matter due to the magnitude of the inventory balance and the subjectivity involved in its valuation, which required extensive audit procedures and professional judgment.	Our audit procedures included, among others: • Evaluating the design and testing the operating effectiveness of controls over inventory management and valuation. • Participating in and observing physical inventory counts and condition of inventory. • Assessing the appropriateness of the inventory valuation methods used, as weighted average methods. • Testing the net realizable value of selected inventory items by comparing cost to recent selling prices and reviewing subsequent sales transactions. • Assessing the Company’s process for identifying and provisioning for obsolete and slow-moving inventory, including evaluating management’s estimates and assumptions. • Reviewing the adequacy and completeness of disclosures in accordance with the applicable financial reporting framework

Information other than the Financial Statements and Auditor’s Report
thereon

12. The Company’s management and Board of Directors are responsible
for the other information. The other information comprises the
information included in the Management Discussion and Analysis,
Board’s Report including Annexures to Board’s Report, Business
Responsibility Report, Corporate Governance and Shareholder’s
Information and other information in the Company’s annual report, but
does not include the standalone financial statements and our auditor’s
report thereon. The other information is expected to be made available
to us after the date of this auditor’s report.

Our opinion on the standalone financial statements does not cover the
other information and we do not express any form of assurance
conclusion thereon.

In connection with our audit of the standalone financial statements, our
responsibility is to read the other information identified above when it
becomes available and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or
our knowledge obtained during the course of our audit, or otherwise
appears to be materially misstated.

When we read the Annual Report, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to
those charged with governance and as may be legally advised.
Responsibilities of Management and Those Charged with Governance
for the Standalone Financial Statements

13. The Company’s Board of Directors is responsible for the matters stated
in section 134(5) of the Act with respect to the preparation of these
standalone financial statement that give a true and fair view of the
financial position, financial performance including other Comprehensive
Income, cash flows and changes in equity of the Company in accordance
with the Ind AS and other accounting principles generally accepted in
India. This responsibility also includes maintenance of adequate
accounting records in accordance with the provisions of the Act for
safeguarding the assets of the Company and for preventing and detecting
frauds and other irregularities; selection and application of the
appropriate accounting policies; making judgments and estimates that
are reasonable and prudent; and design, implementation and
maintenance of adequate internal financial controls, that were operating

effectively for ensuring the accuracy and completeness of the accounting
records, relevant to the preparation and presentation of the standalone
financial statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error.

14. In preparing the standalone financial statements, management is
responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either
intends to liquidate the Company or to cease operations, or has no
realistic alternative but to do so.

15. Those Board of Directors are also responsible for overseeing the
Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Standalone Financial

Statements

16. Our objectives are to obtain reasonable assurance about whether the
standalone financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance
with SAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these
standalone financial statements.

17. As part of an audit in accordance with SAs, we exercise professional
judgment and maintain professional skepticism throughout the audit.
We also:

• Identify and assess the risks of material misstatement of the
standalone financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the
circumstances. Under section 143(3) (i) of the Act, we are also

responsible for expressing our opinion on whether the Company
has adequate internal financial controls system in place and the
operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made
by management.

• Conclude on the appropriateness of management’s use of the going
concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability
to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the standalone financial statements
or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date
of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the
standalone financial statements, including the disclosures, and
whether the standalone financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.

18. We communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control
that we identify during our audit.

19. We also provide those charged with governance with a statement that
we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.

20. From the matters communicated with those charged with governance,
we determine those matters that were of most significance in the audit
of the standalone financial statements of the current year and are therefore
the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.

Report on Other Legal and Regulatory Requirements

21. As required by the Companies (Auditor’s Report) Order, 2020 (“the
Order”) issued by the Government of India in terms of Section 143(11)
of the Act, we give in the “Annexure A”, a statement on the matters
specified in paragraphs 3 and 4 of the Order, to the extent applicable.

22. Further to our comments in Annexure A, as required by Section 143(3)
of the Act, based on our audit, we report that:

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

b) Except for the effects of the matter described in the Basis for Qualified
Opinion paragraph, 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, the Statement of
Cash Flow and Statement of Changes in Equity dealt with by this Report
are in agreement with the books of account.

d) Except for the matters stated in paragraph 3 to 6 of the Report under
basis for qualified opinion, In our opinion, the aforesaid standalone
financial statements comply with accounting standards as specified
under Section 133 of the Act.

e) The matters described in the Basis for Qualified Opinion paragraph
above, in our opinion, may have an adverse effect on the functioning of
the Company.

f) On the basis of the written representations received from the directors
as on 31st March, 2025 and taken on record by the Board of Directors,
none of the directors is disqualified as on 31 st March, 2025 from being
appointed as a director in terms of Section 164(2) of the Act.

g) The Qualification relating to the maintenance of accounts and other
matters connected therewith are as stated in the basis for Qualified
Opinion paragraph above.

h) With respect to the adequacy of the internal financial controls with
reference to Standalone Financial Statements of the Company and the
operating effectiveness of such controls, refer to our separate Report in
“Annexure B”. Our report expresses an unmodified opinion on the
adequacy and operating effectiveness of the Company’s internal financial
controls with reference to Standalone Financial Statement.

i) The company has paid/provided for managerial remuneration in
accordance with the requisite approvals mandated by the provisions of
Section 197 read with Schedule V to the Act.

j) With respect to the other matters to be included in the Auditor’s Report
in accordance with Rule 11 of the Companies (Audit and Auditors)
Rules, 2014 (as amended), in our opinion and to the best of our
information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on
its financial position in its standalone Ind AS financial statements.
(Refer Note 34 to the financial statements);

ii. The Company did not have any long-term contracts including
derivative contracts for which there were any material foreseeable
losses;

iii. There is no default in transferring amounts, required to be
transferred, to the Investor Education and Protection Fund by
the company during the year ended on 31st March, 2025. (Refer
Notes 12.1, 13.1, 13.2, 16.2, 16.4, 18.2 & 18.3 to the financial
statements).

iv. (i) The management has represented that, to the best of its
knowledge and belief, other than as disclosed in the notes to the
accounts , no funds have been advanced or loaned or invested
(either from borrowed funds or share premium or any other
sources or kind of funds) by the Company to or in any other
persons or entities , including foreign entities (“Intermediaries”)
with the understanding, whether recorded in writing or otherwise,
that the Intermediaries shall, whether, directly or indirectly lend
or invest in the other persons or entities identified in any manner
whatsoever by or on behalf of the Company (“Ultimate
Beneficiaries”) or provide any guarantee, security or the like on
behalf of the Ultimate Beneficiaries.

(ii) The management has represented, that to the best of its
knowledge and belief, no funds have been received by the
Company from any persons or entities, including foreign entities
(“Funding Parties”), with the understanding, whether recorded
in writing or otherwise, that the company shall, whether directly
or indirectly lend or invest in the other persons or entities
identified in any manner whatsoever by or on behalf of the
Funding Parties (“Ultimate Beneficiaries”) or provide any
guarantee, security or the like on behalf of the Ultimate
Beneficiaries.

iii) Based on such audit procedures as considered reasonable
and appropriate in the circumstances, nothing has come to our
notice that has caused us to believe that the representations under
sub clause (i) and (ii) of Rule 11(e) of the Companies (Audit and
Auditors) Rules, 2014, as mentioned at para (iv)(i) and (iv)(ii)

above, contain any material mis-statement.

v. The company has not declared or paid any dividend during the year
as prescribed under Section 123 of the Act.

vi. Based on our examination which included test checks, the company
has used an accounting software for maintaining its books of account
which has a feature of recording audit trail (edit log) facility and
the same has operated throughout the year for all relevant
transactions recorded in the software. Further, during the course of
our audit we did not come across any instance of audit trail feature
being tampered with. Additionally, the audit trail has been preserved

by the company as per the statutory requirements for record retention
the date of implementation of edit log feature.

For J. T. Shah & Co.

Chartered Accountants
[Firm Regd. No. 109616W]

Place : Ahmedabad (A.K. Panchal)

Date : 28.05.2025 Partner

[M. No. 116848]
UDIN:25116848BMKYUH7284

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Mar 31, 2012

1. We have audited the attached Balance Sheet of MODERN DENIM LIMITED as at 31st March 2012, the Statement of Profit and Loss and also 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 auditing standards generally accepted in India. These 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 also 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 issued by the Company Law Board in terms of section 227 (4 A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 & 5 of the said order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

(i) We have obtained all the information and explanations, which are to the best of our knowledge and belief, were necessary for the purpose of our audit;

(ii) 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;

(iii) 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;

(iv) 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 except as stated at para (vi) below.

(v) On the basis of written representations received from the directors and taken on record by the Board of Directors, 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;

(vi) We further report that:

(a) Dividend for the year amounting to Rs. 110.75 lacs on cumulative redeemable preference shares has not been provided. The total amount of Dividend not provided till 31st March 2012 amounts to Rs. 1772.00 lacs. (Note No. 1.3)

(b) Provision for interest on certain Secured and Unsecured Borrowings amounting to Rs. 231.67 lacs has not been made in accounts. The total amount of Interest not provided till 31st March 2012 amounts to Rs. 1680.09 lacs. (Note No. 4.2, 4.3 & 4.10)

(c) Compound interest, Penal and liquidated damages in respect of all borrowings have not been provided, amount of which is unascertainable, pending confirmations/ reconciliation. (Note No. 4.12)

(d) Balances of Trade payables, Trade receivables, Advances and Loans etc. are subject to confirmation and reconciliation if any. (Note No. 7.2 &12.2)

(e) Amount paid towards restructuring/settlement to various secured lenders Rs. 2234.66 lacs has been shown under the head Loans & advances. Non-current Long Term Borrowings and Long-term Loans & advances are overstated to that extent. (Note No. 10)

(f) The accounts of the Company have been prepared on a going concern basis though the Board for Industrial and Financial Reconstruction (BIFR) has declared the company as a sick company. (Note No. 27)

(g) Provisions for impairment loss if any, has not been made, amount of which is unascertainable. (Note No. 31)

(h) Pursuant to restructuring of some of the borrowings, the Company has taken credit of Rs. NIL to Statement of Profit and Loss as exceptional items during the year; pending fulfillment of future obligations. Total Credit taken by the Company upto 31st March 2012 which are subject to fulfillment of future obligations amounts to Rs. 12391.51 lacs.

We further report that, without considering items mentioned at para (vi)(c), (vi)(d), (vi)(f) and (vi)(g) of para 4 above, the effect of which could not be determined, had the observations made by us in para (vi)(a), (vi)(b), (vi)(e) and (vi)(h) above been considered, the loss for the year would have been Rs. 102.32 lacs (as against the reported figure of profit of Rs. 129.35 Lacs), Long term borrowings would have been Rs. 4477.63 lacs (as against the reported figure of Rs. 6712.29 lacs), Other current liabilities would have been Rs. 22061.95 lacs (as against the reported figure of Rs. 6218.35 lacs), Long term loans & advances would have been Rs. 185.08 lacs (as against the reported figure of Rs. 2419.74 lacs) and Debit balance of Reserves & Surplus would have been Rs. 31396.15 lacs (as against the reported figure of Rs. 15552.55 lacs).

(vi) Subject to the 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 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 of the Company for the year ended on that date; and

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

ANNEXURE TO THE AUDITORS' REPORT

Referred to in paragraph 3 of our Report of even date to the Members of MODERN DENIM LIMITED.

1. In respect of Fixed Assets:

a. The Company has maintained proper records showing full particulars including quantitative details and situation of Fixed Assets other than Furniture and Fixtures for which detailed records are not maintained.

b. As per the information and explanations given to us, the fixed assets were physically verified by the management at reasonable intervals during the year in accordance with a programme of physical verification and no material discrepancies were noticed on such verification as compared to the available records.

c. During the year, the Company has not disposed off any major/substantial part of the fixed assets.

2. In respect of its Inventories:

a. The inventory has been physically verified during the period 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 opinion that the Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and books records were not material.

3. In respect of loans, secured or unsecured, granted or taken by the company to/ from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

a. The Company has not granted any loans, secured or unsecured, to the companies, firms or other parties covered in the register, maintained under section 301 of the Companies Act, 1956, and therefore the clauses (iii)(a), (iii)(b), (iii)(c) and (iii)(d) of The Companies (Auditor's Report) Order, 2003 are not applicable.

b. The Company has not taken any loans, secured or unsecured, from the companies, firms or other parties covered in the register, maintained under section 301 of the Companies Act, 1956, and therefore the clauses (iii)(e), (iii)(f) and (iii)(g) of The Companies (Auditor's Report) Order, 2003 are not applicable.

4. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchases of inventory, fixed assets and with regard to the sale of goods. During the course of our audit, no major weakness has been noticed in the internal controls.

5. In respect of transactions covered under Section 301 of the Companies Act, 1956:

a. Based on the audit procedures applied by us and according to the information and explanations provided by management, we are of the opinion that the contracts or arrangements that need to be entered into the register maintained under section 301 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 registers maintained under section 301 in respect of any of the parties during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

6. The Company has not accepted any fresh deposits during the year. As per the information and explanations given to us, in respect of deposits accepted in earlier years, the compliance with the provisions of Section 58A 58AA or any other relevant provisions of Companies Act, 1956 and rules framed there under are subject to the order passed by the Company Law Board on 21/12/2001 whereby the Company is required to make repayment of deposits and payment of interest thereon in accordance with the revival scheme to be approved by the Board for Industrial and Financial Reconstruction (BIFR) under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985.

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

8. We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records 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,

9. In respect of statutory dues:

a. According to the records of the Company, the Company is regular in depositing with appropriate authorities undisputed statutory dues including provident funds, employee's state insurance, income tax, sales tax, wealth tax, custom duty, excise duty, cess and other statutory dues applicable to it.

b. According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth tax, service tax, customs duty, sales tax and excise duty were outstanding as at 31st March, 2012 for a period of more than six months from the date they became payable.

c. According to the records of the Company, the dues of excise duty and income tax, which have not been deposited on account of disputes and the forum where the dispute is pending, are as under:

Name of the Nature of Amount Forum where dispute Statute the Dues (Rs. In is pending lacs)

The Central Excise duty 0.34 The Central Excise and Excise Act, 1944 Penalty 24.42 Service Tax Appellate Tribunal (Ahmedabad)

The Central Excise duty 0.91 The Central Excise and Excise Act, 1944 Penalty 15.82 Service Tax Appellate Tribunal (Ahmedabad)

Income Tax Penalty 128.09 The Commissioner of Income Tax, Jaipur

Total 169.58

10. The accumulated losses of the Company as at 31st March, 2012 are more than fifty percent of its net worth. The Company has earned cash profit during the financial year under review and during the immediate preceding financial year.

11. The Company has defaulted in repayment of installments of dues to Financial Institutions, Banks and Debenture holders amounting to Rs. 4749.30 lacs since 1997.

12. Based on our examination of documents and records and information and explanations given to us, 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. The provisions of any special statute applicable to Chit Fund, Nidhi or Mutual benefit Fund/Societies are not applicable to the Company.

14. The Company is not dealing or trading in shares, securities, debentures or other investments and hence, the requirements of para 4 (xiv) are not applicable to the Company.

15. As per the information provided to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions.

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

17. The Company has not raised any short term funds during the year under review.

18. 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.

19. As per the information given to us, the Company has created security in respect of debentures issued in earlier years except for the cases where debentures trust deeds are yet to be executed.

20. During the year, the Company has not raised any money by way of public issues.

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



FOR J. T. SHAH & COMPANY CHARTERED ACCOUNTANTS (Firm Registration No. I09616W)

(J. T. SHAH) PARTNER (Membership No. 3983)

Place: Ahmedabad Date: 30th June, 2012

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Mar 31, 2011

1. We have audited the attached Balance Sheet of MODERN DENIM LIMITED as at 31st March 2011, the Profit and Loss Account and also 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 auditing standards generally accepted in India. These 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 also 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 issued by the Company Law Board in terms of section 227 (4A) of the Companies Act, 1956, we enclose in tube annexure a statement on the matters specified in paragraphs 4 & 5 of the said order.

4. Further to our comments in the annexure referred to in paragraph 3 above, we report that:

(i) We have obtained all the information and explanations, which are to the best of our knowledge and belief, were necessary for the purpose of our audit;

(ii) In our opinion, proper books of account as required by law have been kept by the Companyso far as appears from our examination of those books;

(iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

(iv) 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 except as stated at para (vi) below.

(v) The directors, other than nominee directors, of the Company are restricted from being appointed as Director in any other - public Company under clause (g) of section 274(1) of the Companies Act, 1956. As per 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 re-appointed as a director on the expiry of their tenure. We have been informed that the Company has made representation to the Central Government (Department of Company Affairs) seeking appropriate exemption from the applicability of the section.

(vi) We further report that:

(a) Compound interest, Penal and liquidated damages in respect of all borrowings have not been provided, amount of which is unascertainable, pending confirmations / reconciliation. (Note No. 7 of Schedule 13)

(b) Dividend for the year amounting to Rs. 110.75 lacs on cumulative redeemable preference shares has not been provided. The total amount of Dividend not provided till 31st March 2011, amounts to Rs. 1661.25 lacs. (Note No. 8 of Schedule 13)

(c) Provision for interest on certain Secured and Unsecured Loans amounting to Rs. 235.70 lacs has not been made in accounts. The total amount of Interest not provided till 31st March 2011, amounts to Rs. 2397.02 lacs. (Note No.9& 10 of Schedule 13)

(d) Provisions for-impairment loss if "any, has not been made, amount of which is unascertainable. (Note no. 27 of schedule 13)

(e) Balances of Debtors, Creditors. Advances and Loans etc. are subject to confirmation and reconciliation if any. (Note No. 12 of Schedule 13)

(f) Amount paid towards restructuring I settlement to various secured lenders Rs. 1356.25 lacs has been shown under the head Loans & advances. Secured loans and Loans and advances are overstated to that extent. (Note No. 5 of schedule 13)

(g) Pursuant to restructuring of some of the borrowings, the Company has taken credit of Rs 6994.33 lacs to Profit and Loss account as exceptional items during the year; pending fulfillment of future obligations. Total Credit taken by the Company upto 31st March 2011, which are subject to fulfillment of future obligations, amounts to Rs.13142.94 lacs. In some cases Company has defaulted in fulfilling the payment obligation of restructured debts as per schedule; however the liability is kept according to settlements as the Company is in negotiation with respective lenders. (Note No. 16 of schedule 13)

(h) The accounts of the Company have been prepared on a going concern basis though the Board for Industrial . and Financial Reconstruction (BIFR) has declared the company as a sick company. (Note No. 17 of Schedule 13)

We further report that, without considering items mentioned at Para (vi)(a), (vi)(d),(vi) (e) and (vi)(h) of Para 4 above, the effect of which could not be determined, had the observations made by us in Para (vi)(b), (vi)(c), (vi)(f) and (vi) (g) above been considered, the profit for the year would have been Rs. 72.44 lacs (as against the reported figure of profit of Rs. 30S.14 Lacs), Secured loans would have been Rs. 21138.30 lacs (as against the reported figure of Rs. 8216.80 lacs). Unsecured Loans would have been Rs. 7491.47 lacs (as against the reported figure of Rs. 6229.26 lacs), Current Liabilities and Provisions would have been Rs. 4020.65 lacs (as against the reported figure ofRs. 2359.40 lacs), Loans and advances would have been Rs. 312.65 lacs (as against the. reported figure of Rs. 1668.90 lacs) and Debit Balance in Profit & Loss Account would have been Rs. 39687.74 lacs (as against the reported figure of Rs. 22486.53 lacs).

(vii) Subject to the 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 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, 2011;

(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 for the year ended on that date.

ANNEXURE TO THE AUDITORS REPORT

Referred to in paragraph 3 of our Report of even date to the Members of MODERN DENIM LIMITED.

1. In respect of Fixed Assets:

a. The Company has maintained proper records showing full particulars including quantitative details and situation of Fixed Assets other than Furniture and Fixtures for which detailed records are not maintained.

b. As per the information and explanations given to us, the fixed assets were physically verified by the management at reasonable intervals during the year in accordance with a programmed of physical verification and no material discrepancies were noticed on such verification as compared to the available records.

c. During the year, the Company has not disposed off any major/substantial part of the fixed assets.

2. In respect of its Inventories:

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 opinion that the Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and books records were not material.

3. In respect of loans, secured or unsecured, granted or taken by the company to/from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

a. The Company has not granted any loans, secured or unsecured, to the companies, firms or other parties covered in the register, maintained under section 301 of the Companies Act, 1956, and therefore the clauses (iii)(a), (iii)(b), (iii)(c) and (iii)(d) of The Companies (Auditor's Report) Order, 2003 are not applicable.

b. The Company has not taken any loans, secured or unsecured, from the companies, firms or other parties covered in the register, maintained under section 301 of the Companies Act, 1956, and therefore the clauses (iii)(e), (iii)(f) and (iii)(g) of The Companies (Auditor's Report) Order, 2003 are not applicable.

4. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchases of inventory, fixed assets and with regard to the sale of goods. During the course of our audit, no major weakness has been noticed in the internal controls.

5. In respect of transactions covered under Section 301 of the Companies Act, 1956:

a. Based on the audit procedures applied by us and according to the information and explanations provided by management, we are of the opinion that the contracts or arrangements that need to be entered into the register maintained under section 301 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 registers maintained under section 301 in respect of any of the parties during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

6. The Company has not accepted any fresh deposits during the year. As per the information and explanations given to us, in respect of deposits accepted in earlier years, the compliance with the provisions of Section 58A, 58AA or any other relevant provisions of Companies Act, 1956-and rules framed there under are subject to the order passed by the Company Law Board on 05/12/2001 whereby the Company is required to make repayment of deposits and payment of interest thereon in accordance with the revival scheme to be approved by the Board for Industrial and Financial Reconstruction (BIFR) under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985.

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

8. We have broadly reviewed the books of account relating to materials, labor and other items of cost maintained by the Company pursuant to the rules made by the Central Government for the maintenance compost records 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.

9. In respect of statutory dues:

a. According to the records of the Company, the Company is regular in depositing with appropriate authorities undisputed statutory dues including provident funds, employee's state insurance, income tax, sales tax, wealth tax, custom duty, excise duty, cess and other statutory dues applicable to it.

b. According to the information and explanations given to us, no undisputed amounts payable in respect of inepter. tax, wealth tax, service tax, customs duty, sales tax and excise duty were outstanding as at 31st March, 2011 for a period of more than six months from the date they became payable .

c. According to the records of the Company, the dues of excise duty and income tax, which have not been deposited on account of disputes and the forum where the dispute is pending, are as under.'

Name of the Nature of Amount Fohim where dispute

Statute the Dues (Rs In Is pending lacs TheCentral- Exciseduty 0.34 The Central Excise and

Excise Act, 1944 Service Tax Appellate Penalty 24.42 Tribunal (Ahmedabad)

The Central- Exciseduty 0.91 The Central Excise and

Excise Act, 1944 Service Tax Appellate

Penalty 15.82 Tribunal (Ahmedabad)

Gujarat VAT, VAT 2.13 The Dy. Commissioner

2006 Penatly 1.31 Of Commercial Tax

(Ahmedabad)

Interest 1.54

Central Sales Tax CST 0.59 The Dy. Commissioner

of Commercial Tax.

Penalty 0.29 (Ahmedabad) interest 0.42

Income Tax Penalty 128.09 The Commissioner of

Income Tax, Jaipur

Total 175.86

10. The accumulated losses of the Company as at 31st March, 2011 are more than fifty percent of its net worth. The Company has earned cash profit during the financial year under review but incurred cash losses during the immediate preceding financial year.

11. The Company has defaulted in repayment of installments of dues to Financial Institutions. Banks and Debenture holders amounting to Rs. 5405.55 lacs since 1997.

12. Based on our examination of documents and records and information and explanations given to us, the Company has not granted any loans and advances on die basis of security by way of pledge of shares, debentures and. other securities.

13. The provisions of any special statute applicable to Chit Fund, Nidhi or Mutual benefit Fund/Societies are not applicable to the Company.

14. The Company is not dealing or trading in shares, securities, debentures or other investments and hence, the requirements of para 4 (xiv) are not applicable to the Company.

15. As per the information provided to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions.

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

17. The Company has not raised any short term funds during the year under review.

18. 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.

19. As per the information given to us, the Company has created security in respect of debentures issued in earlier years except for the cases where debentures trust deeds are yet to be executed. ,

20. During the year, the Company has not raised any money by way of public issues.

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



For J. T. SHAH & COMPANY

CHARTERED ACCOUNTANTS (Firm Registration No. 109616W)

(J. T. SHAH)

Place: Ahmedabad PARTNER

Date :27th June, 2011 (Membership No. 3983)