Chambal Fertilisers & Chemicals Ltd

To

The Members of

Chambal Fertilisers and Chemicals Limited

1. We have audited the attached Balance Sheet of Chambal Fertilisers and Chemicals Ltd.(the Company) as at March 31, 2010 and also the Profit and Loss Account and the Cash FlowStatement for the year ended on that date annexed thereto, in which are incorporatedfinancial statements of Shipping Division of the Company audited by other auditors. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility 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 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 (as amended) issuedby the Central Government in terms of sub-section (4A) of Section 227 of the CompaniesAct, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4and 5 of the said Order.

4. 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 and proper returns adequatefor the purposes of our audit has been received from Shipping Division not visited by us.The Branch Auditors’ Report of the Shipping Division have been forwarded to us andhave been appropriately dealt with;

iii. The balance sheet, profit and loss account and cash flow statement dealt with bythis report are in agreement with the books of account and audited returns from theShipping Division;

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 March31, 2010, and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on March 31, 2010 from being appointed as a director in termsof clause (g) of subsection (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 March31, 2010;

b) in the case of the Profit and Loss Account, of the profit of the Company for theyear ended on that date; and

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

ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE CHAMBAL FERTILISERS ANDCHEMICALS 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 basedon a phased programme of verifying all the assets over a period of two years, which in ouropinion is reasonable having regard to the size of the Company and the nature of its fixedassets. No material discrepancies were noticed on physical 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.

(iii) (a) The Company has granted loans to three companies covered in the registermaintained under Section 301 of the Companies Act, 1956. The maximum amount involvedduring the year was Rs.3000 Lacs and the year end balance of loans granted to such partiesis Rs.2000 Lacs.

(b) In our opinion and according to the information and explanations given to us, therate of interest and other terms and conditions for such loans are not prima facieprejudicial to the interest of the Company.

(c) In respect of loans granted, repayment of the principal amount is as stipulated andpayment of interest is also regular.

(d) There is no overdue amount of loans granted to companies, firms or other partieslisted in the register maintained under Section 301 of the Companies Act, 1956.

(e) 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, provisions of clauses 4(iii) (f) and (g) of theCompanies (Auditor’s Report) Order, 2003 (as amended) are not applicable to theCompany.

(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 and fixed assets and for thesale of goods and services. During the course of our audit, no major weakness has beennoticed in the internal control system in respect of these areas. During the course of ouraudit, we have not observed any continuing failure to correct major weakness in internalcontrol system of the Company.

(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 Act that need to be entered into the register maintained under Section301 have been so entered.

(b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of such contracts or arrangements exceeding value of RupeesFive lakhs have been entered into during the financial year at prices which are reasonablehaving regard to the prevailing market prices at the relevant time.

(vi) In respect of deposits accepted, in our opinion and according to the informationand explanations given to us, directives issued by the Reserve Bank of India and theprovisions of Sections 58A, 58AA or any other relevant provisions of the Companies Act,1956 and the rules framed thereunder, to the extent applicable, have been complied with.We are informed by the management that no order has been passed by the Company Law Board,National Company Law 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 thesize and nature of its business.

(viii) We have broadly reviewed the books of account maintained by the Company pursuantto the rules made by the Central Government for the maintenance of cost records underSection 209(1) (d) of the Companies Act, 1956, and are of the opinion that prima facie,the prescribed accounts and records have been made and maintained.

(ix) (a) Undisputed statutory dues including provident fund, investor education andprotection fund, or employees’ state insurance, income-tax, sales-tax, wealth-tax,service tax, customs duty, excise duty, have generally been regularly deposited with theappropriate authorities. Further, since the Central Government has till date notprescribed the amount of cess payable under Section 441 A of the Companies Act, 1956, weare not in a position to comment upon the regularity or otherwise of the Company indepositing the same.

(b) According to the information and explanations given to us, no undisputed amountspayable in respect of provident fund, investor education and protection fund,employees’ state insurance, income-tax, wealth-tax, service tax, sales-tax, customsduty, excise duty and other undisputed statutory dues were outstanding at the year end fora period of more than six months from the date they became payable.

(c) According to the records of the Company, there are no dues outstanding ofincome-tax, sales-tax, wealth-tax, service tax, custom duty, excise duty and cess onaccount of any dispute, other than the following:

(x) The Company has no accumulated losses at the end of the financial year and it hasnot incurred any cash losses in the current and 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, bank or debenture holders.

(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 benefitfund/society. Therefore, the provisions of clause 4 (xiii) of the Companies (AuditorsReport) Order, 2003 (as amended) are not applicable to the Company.

(xiv) In respect of dealing/trading in shares, securities, debentures and otherinvestments, in our opinion and according to the information and explanations given to us,proper records have been maintained of the transactions and contracts and timely entrieshave been made therein. The shares, securities, debentures and other investments have beenheld by the Company in its own name.

(xv) According to the information and explanations given to us, the Company has givenguarantee for loans taken by its subsidiaries from bank/ financial institutions, the termsand conditions whereof in our opinion are not prima-facie pre judicial to the interest ofthe Company.

(xvi) Based on information and explanations given to us by the management, term loanswere 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 on shortterm 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) Based on books and records produced to us by the management, securities have beencreated in respect of debentures issued, wherever required.

(xx) The Company has not raised any money through a public issue during the year.

(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.