Arihant Foundations & Housing Ltd

To

The Members,

Arihant Foundations & Housing Limited

1. We have audited the attached balance sheet of M/s Arihant Foundations And HousingLimited ( the Company ) as at 30th September 2012, and also the annexed profit and lossaccount of the Company for the year ended on that date annexed thereto. These financialstatements are the responsibility of the Company s management. Our responsibility is toexpress an opinion on these financial statements based on our audit.

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

3. As required by the Companies (Auditor s Report) Order, 2003 ( the Order ), asamended by the Companies (Auditor s Report) (Amendment) Order 2004, issued by the CentralGovernment of India in terms of sub-section (4A) of Section 227 of the Companies Act,1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and5 of the said Order.

4. Further to our comments above, we report that:

i) We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes of our audit;

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

iii) The balance sheet and profit and loss account dealt with by this report are inagreement with the books of account;

iv) In our opinion, the balance sheet, and profit and loss account dealt with by thisreport comply with the accounting standards referred to in sub-section (3C) of section 211of the Companies Act, 1956, except Accounting Standard (15) and in case of HUDCO thecompany has not accrued interest amounting to Rs. 11, 01, 67,851.50/- for the period from1/07/2004 to 30/09/2012.

v) On the basis of written representations received from the directors, as on 30thSeptember 2012, and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on 30th September 2012 from being appointed as a director interms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;.

vi) In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts give the information required by the Companies Act, 1956,in the manner so required and give a true and fair view except as mentioned in note (iv)above are 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 30thSeptember 2012 and

(b) In the case of the profit and loss account, of the profit of the Company for theyear ended 30th September 2012.

(c) In the case of cash flow statement, of the cash flows for the year ended on Thatdate.

ANNEXURE

Re: M/S ARIHANT FOUNDATIONS AND HOUSING LIMITED

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

On the basis of such checks we considered appropriate and according to the informationand explanations given to us during the course of audit, we state that:

(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets. None of the assets have been revaluedduring the year.

(b) The fixed assets have been physically verified by the management at reasonableinterval and no material discrepancies are noticed on such verification.

(c) The company has not disposed off substantial part of fixed assets during year so asto affect its going concern status.

(ii) (a) The stock of construction materials has been physically verified at periodicintervals and no significant discrepancies has been noticed on such verification duringthe year.

(b) The procedure of physical verification of stock of building material, followed bythe management is reasonable and adequate in relation to the size of the company andnature of its company.

(c) The company does not maintain stock records of raw materials. We are of the opinionthat the valuation of the stock of building is as per normally accepted accountingprinciples. The company has not identified slow moving building materials separately.

(iii) (A) The company has granted during the year loans of unsecured in nature tocompanies, firms or other parties listed in the register maintained under section 301 ofthe companies Act 1956, and the details are as follows

No of parties : (9)

Maximum amount involved in the transaction : Rs. 68,15,13,649/- Closing balance of theloan is Rs. 57,20,31,013/-

(b) The rate of interest and other terms and conditions of loans given by the company,secured and unsecured are not prima facie prejudicial to the interest of the company.

(c) The receipt of principal and interest thereon are regular.

d) Where the overdue amount exceeds rupees one lakh the company has taken necessarysteps to recover the amount and interest thereon.

e) The company has taken loans, secured or unsecured from companies, firms or otherparties listed in the register maintained under section 301 of the companies Act 1956 andthe details are as follows

No of parties : (9)

Maximum amount involved in the transaction : Rs. 21,69,58,069/- Closing balance of theloan is Rs. 19, 91,86,472/-

(f) The rate of interest and other terms and conditions of the loan taken by thecompany, secured and unsecured are not prima facie, prejudicial to the interest of thecompany.

(g) The repayment of principal and interest thereon to the concerned parties is alsoregular. During the year the company has repaid loans to the extent of Rs 24, 67,91,669/-.

(iv) The company has an adequate internal control procedure commensurate with the sizeand nature of business for the purchase of stores and raw materials, plant &machinery, equipment and other assets for the sale of finished stocks.

(v) (a) In our opinion and according to the information and explanations given by themanagement, contracts and arrangements referred to in section 301 of the Companies Act,1956 have been entered in the register required to be maintained under that section.

(b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of such contracts or arrangements entered in the registermaintained under section 301 of the companies Act 1956 and exceeding the value of rupeesfive lakhs in respect of any party during the year, have been made at a price which arereasonable having regard to the prevailing market prices at the relevant time.

(vi) The Company has accepted fixed deposits and in our opinion and according to theinformation and explanation given to us, the directives issued by the Reserve Bank ofIndia and provisions of Section 58A,58AA and other relevant provisions of the CompaniesAct, 1956 and rules framed there under, where applicable, have been duly complied withexcept in case of unsecured loans others borrowed by the company which fall within thedefinition of deposits defined u/s 2(b) of companies act amounting to Rs 2,62,02,436. Weare informed that no order has been passed by the company Law Board or National CompanyLaw Tribunal or Reserve Bank of India or any court or any other tribunal.

(vii) In our opinion the company has an internal audit system commensurate with sizeand nature of its business.

(viii) We have broadly reviewed the cost records maintained by the company pursuant tothe rules made by the Central Government for the maintenance of cost records by theCompany under section 209 (1) (d) of the Companies Act,1956 and are of the opinion thatprimafacie the cost records have been maintained by the company. We have however not madea detailed examination of the same as the same has been certified by a cost accountant.

(ix) According to the information and explanations given to us and on the basis of ourexamination of books of account, in our opinion

a) The Company is regular in depositing undisputed statutory dues including, InvestorEducation and protection fund, Income Tax, Wealth Tax, Service Tax, Cess, Sales tax, VAT,Excise duty and any other material statutory dues during the year with the appropriateauthorities. Except the company did not remit the employees provident fund due in time.

b) According to the information and explanation given to us there are dues in respectof following taxes on account of dispute , which are as follows:-

INCOME TAX

SERVICE TAX

The company has filed a writ against the above service tax levied by the department andthe penalty levied by the service tax department to the tune of Rs.70 lakh vide court caseno.6562 / 2011 before the honorable madras High Court and the high court has granted astay until further orders.

(x) The company has no accumulated losses as at September 30, 2012 and it has notincurred cash losses in the financial year ended on that date or in the immediatelypreceding financial year.

(xi) According to the records of the company examined by us and the information andexplanation given to us, the Company has not defaulted in repayment of dues to anyfinancial institution or Bank or debenture holders as at the balance sheet date. (Exceptin case of HUDCO, wherein the company is disputing the amount of interest payment /Principal payment and rate of interest due to non release of NOC in favor of prospectivebuyers vide court case No Q.A.No 78 of 2004. The company had filed contempt of courtpetition vide petition No 384/2004 against HUDCO for not obeying the directions of HighCourt. HUDCO had filed a suit in the Debt Recovery Tribunal). The company has paid a sumof the above dispute as to principal and interest thereon a sum of Rs 15,48,54,845/- wasdetermined as principal by the Debt Recovery Tribunal. The company has paid the principalamount of Rs.15,48,54,845 to HUDCO (Rs.12,87,47,121/- AND 2,61,07,364/- as interest). Thecompany has not accrued interest to the tune Rs 9,93,77,130.40/- as payable to HUDCO asper the order of the Debt Recovery Tribunal Dated 8/8/2011 for the period (01/07/2004 to26/08/2011) and further consequent interest as per recovery officer amounting toRs1,07,90,720.70 for the period (27/08/2011 to 30/09/2012) needs to be further accountedfor belated payment of (interest and incidental cost).

(xii) According to the information and explanation given to us, the company has notgranted loans and advances on the basis of security by way of pelage of shares, debenturesand other securities.

(xiii) The provision of any special statute applicable to a chit fund / mutual benefitfund / societies are 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, clause 4(xiv) of the order is notapplicable.

(xv) In our opinion, and according to information and explanations given to us, theCompany has not given guarantees for loans taken by others from banks or financialinstitutions.

(xvi) According to the information and explanations given to us and on the basis ofexamination of books of accounts, the company has applied term loans for the purpose forwhich the loans were obtained.

(xvii) According to the information and explanation given to us and on an overallexamination of balance sheet of the company, we report that no funds raised for short termbasis utilised for long term investment and vice versa.

(xviii) According to the information and explanations given to us the Company has notmade any preferential allotment of share to the parties and companies covered in theregister maintained under section 301 of the companies Act 1956, accordingly clause4(xviii) of the order is not applicable.

(xix) The company has not issued any debentures during the year hence question ofhaving security or registering a charge with the Registrar of Companies does not ariseduring the year.

(xx) The company has not raised the public issue during the year; accordingly, clause4(xx) of the Order is not applicable to the Company.

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