Cairn India Ltd

TO THE MEMBERS OF CAIRN INDIA LIMITED

1 We have audited the attached Balance Sheet of Cairn India Limited (‘theCompany’) as at 31 March, 2010 and also the Profit and Loss Account and the Cash FlowStatement for the year ended on that date annexed thereto. These financial statements arethe responsibility of the Company’s management. Our responsibility is to express anopinion 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.

• The attached financial statements include Company’s share of net assets,expenses and cash flows aggregating to INR 4,031 thousand, INR 529,058 thousand and INRNil thousand respectively in the unincorporated joint ventures not operated by the Companyor its subsidiaries, the accounts of which have been audited by the auditors of therespective unincorporated joint ventures and relied upon by us.

4 As required by the Companies (Auditor’s Report) Order, 2003 (as amended)(‘the Order’) issued by the Central Government of India in terms of sub-section(4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement onthe matters specified in paragraphs 4 and 5 of the said Order. In respect of clauses (ii),(ix)(a), (ix)(b), (ix)(c) and (xxi), our comments are restricted to the operations of theCompany and does not cover the unincorporated joint ventures where any third party is theoperator.

5 Further to our comments in the Annexure referred to 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, profit and loss account and cash flow statement dealt with bythis report are in agreement with the books of account;

iv In our opinion, the balance sheet, profit and loss account and cash flow statementdealt with by this report comply with the accounting standards referred to in sub-section(3C) of section 211 of the Companies Act, 1956;

v On the basis of the written representations received from the directors, as on 31March, 2010, and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on 31 March, 2010 from being appointed as a director in termsof 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 in conformity with the accountingprinciples generally accepted in India;

a in the case of the balance sheet, of the state of affairs of the Company as at 31March, 2010;

b in the case of the profit and loss account, of the loss for the year ended on thatdate; and

c in the case of cash flow statement, of the cash flows for the year ended on thatdate.

Annexure referred to in paragraph 4 of our report of even date

Re: Cairn India Limited (‘the Company’)

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

(b) Fixed assets have been physically verified by the management during the year and nomaterial discrepancies were identified on such verification.

(c) There was no substantial disposal of fixed assets during the year.

(ii) (a) The management has conducted physical verification of inventory at reasonableintervals during the year.

(b) The procedures of physical verification of inventory followed by the management arereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

(c) The Company is maintaining proper records of inventory and no materialdiscrepancies were noticed on physical verification carried out at the end of the year.

(iii) (a-d) As informed, the Company has not granted any loans, secured or unsecured tocompanies, firms or other parties covered in the register maintained under section 301 ofthe Companies Act, 1956. Therefore the provisions of clause 4(iii) (b), (c) and (d) of theOrder are not applicable to the Company.

(e-g) As informed, the Company has not taken any loans, secured or unsecured fromcompanies, firms or other parties covered in the register maintained under section 301 ofthe Companies Act, 1956. Therefore the provisions of clause 4(iii) (f) and (g) of theOrder are not applicable to the Company.

(iv) In our opinion and according to the information and explanations given to us,there is an adequate internal control system commensurate with the size of the Company andthe nature of its business, for the purchase of inventory, fixed assets and for the saleof services. During the course of our audit, no major weakness has been noticed in theinternal control system in respect of these areas. During the course of our audit, we havenot observed any continuing failure to correct major weakness in internal control systemof the Company. Since the Company has not started commercial production in any of its oiland gas blocks, it has not sold any goods.

(v) (a) According to the information and explanations provided by the management, weare of the opinion that the particulars of contracts or arrangements referred to insection 301 of the Companies Act, 1956 that need to be entered into the registermaintained under section 301 have been so entered.

(b) In respect of transactions made in pursuance of such contracts or arrangementsexceeding the value of Rupees five lakhs entered into during the financial year, becauseof the unique and specialized nature of the items involved and absence of any comparableprices, we are unable to comment whether the transactions were made at prevailing marketprices at the relevant time.

(vi) The Company has not accepted any deposits from the public.

(vii) In our opinion, the Company has an internal audit system commensurate with thesize and nature of its business.

(viii) The Company has not commenced commercial production in any of its oil and gasblocks. Accordingly, the provisions of clause 4(viii) of the Order are not applicable tothe Company.

(ix) (a) The Company is generally regular in depositing with appropriate authoritiesundisputed statutory dues including provident fund, investor education and protectionfund, income-tax, wealth-tax, service tax, cess and other material statutory duesapplicable to it. Further, since the Central Governent has till date not prescribed theamount of cess payable under section 441 A of the Companies Act, 1956, we are not in aposition to comment upon the regularity or otherwise of the Company in depositing thesame. The provisions relating to employees’ state insurance, sales tax, customs dutyand excise duty are not applicable to the Company.

(b) According to the information and explanations given to us, no undisputed amountspayable in respect of provident fund, investor education and protection fund, income-tax,wealth-tax, service tax, cess and other undisputed statutory dues were outstanding, at theyear end, for a period of more than six months from the date they became payable. Theprovisions relating to employees’ state insurance, sales tax, customs duty and exciseduty are not applicable to the Company.

(c) According to the information and explanations given to us, there are no dues ofincome tax, wealth tax, service tax, and cess which have not been deposited on account ofany dispute. The provisions relating to sales tax, customs duty and excise duty are notapplicable to the Company.

(x) The Company has been registered for a period of less than five years and hence weare not required to comment on whether or not the accumulated losses at the end of thefinancial year is fifty per cent or more of its net worth and whether it has incurred cashlosses in such financial year and in the immediately preceding financial year.

(xi) Based on our audit procedures and as per the information and explanations given bythe management, we are of the opinion that the Company has not defaulted in repayment ofdues to a financial institution or bank. The Company has not issued any debentures.

(xii) According to the information and explanations given to us and based on thedocuments and records produced to us, the Company has not granted loans and advances onthe basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund/ society. Therefore, the provisions of clause 4(xiii) of the Order are not applicable tothe Company.

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

(xv) According to the information and explanations given to us, the Company has notgiven any guarantee for loans taken by others from bank or financial institutions.

(xvi) Based on the information and explanations given to us by the management, termloans were applied for the purpose for which the loans were obtained.

(xvii) According to the information and explanations given to us and on an overallexamination of the balance sheet of the Company, we report that no funds raised onshort-term basis have been used for long-term investment.

(xviii) The Company has not made any preferential allotment of shares to parties orcompanies covered in the register maintained under section 301 of the Companies Act, 1956.

(xix) The Company did not have any outstanding debentures during the year.

(xx) We have verified that the end use of money raised by public issues is as disclosedin the notes to the financial statements.

(xxi) Based upon the audit procedures performed for the purpose of reporting the trueand fair view of the financial statements and as per the information and explanationsgiven by the management, we report that no fraud on or by the Company has been noticed orreported during the course of our audit.