Coral Newsprints Ltd

Coral Newsprints Ltd., Delhi-110 092.

1. We have audited the attached Balance Sheet of CORAL NEWSPRINTS LIMITED as at31st March 2010 and also the Profit & Loss Account for the year ended on that dateannexed thereto. These financial statements are the responsibility of the Company'sManagement. Our responsibility is to express an opinion on these financial statementsbased on our audit.

2. We have conducted our audit in accordance with auditing standards generally acceptedin India. 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 the 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, issued by the CentralGovernment of India in terms of Sub-section (4A) of Section 227 of the Companies Act,1956, ('the Act'), we enclose in the Annexure a statement on the matters specified inparagraphs 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 ourknowledge 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 theCompany so far as appears from our examination of those books.

c) The Balance Sheet, Profit & Loss Account dealt with by this report are inagreement with the books of account;

d) In our opinion, the Balance Sheet, profit and loss account & cash flow statementdealt with by this report comply with the Accounting Standards referred to in Sub-Section(3C) of the Section 211 of the Companies Act, 1956;

e) On the basis of the written representation 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 March 31, 2010 from being appointed as a Director in termsof clause (g) of sub-section (1) of Section 274 of the Act;

f) As indicated in note 6, the accounts of the Company have been prepared on the basisthat the Company is a going concern, however having regard to the accumulated losses ofthe Company which have eroded the paid-up Capital, the ability of the Company to continueas a going concern depends on the adequate finance and future profitability.

g. Reference is invited to :

Note 2. Regarding non confirmation of balance of Unsecured loans, few Debtors &Creditors.

Note 4. Regarding non confirmation of Term Loans from UPFC & PICUP.

Note 16. Regarding the dispute with Arrow Syntex (P) Ltd. which is still pending withHon'bfe Arbitrator.

h) Subject to matters referred in Para g, in our opinion and to the best of ourinformation and according to the explanation given to us, the said accounts read withnotes there on give the information required by the Act, in the manner so required to givea true and fair view in conformity with the accounting principles generally accepted inIndia;

i) In the case of the Balance Sheet, of the state of affairs of the Company as at March31, 20010;

ii) In the case of the Profit and Loss Account, of the Profit for the year ended onthat date; and

iii) In the case of Cash Flow Statement, of the cash flow for the year ended on thatdate.

(Referred to in paragraph 3 of our report of even date)

(j) (a) The Company is maintaining proper records showing full particulars, includingquantitative details and situation of fixed assets.

(b) The Company physically verifies the fixed assets on a rotational basis andaccordingly, certain fixed assets have been physically verified by the management duringthe year and no material discrepancies were noticed on such verification.

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

(ii) (a) As explained to us, inventories were physically verified during the year themanagement at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, theprocedures of physical verification of inventories followed by the management werereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

(c) In our opinion and according to the information and explanations given to us, theCompany has maintained proper records of its inventories and no material discrepancieswere noticed on physical verification.

(iii) The Company has not taken any interest free loans or advances in the nature ofloans from any party covered in the register maintained under section 301 of the Actduring the year. The closing balance outstanding as on 31.03.2010 in case of Unsecuredloan taken from directors was Rs. 18.09 Lacs & from the Company was Rs. 131.95 lacswhich are subject to confirmation and the total closing outstanding balance of Unsecuredloans as on 31.03.2010 was Rs. 150.04 Lacs.

The maximum balance outstanding during the year in respect of above loans was Rs.178.89 Lacs.

The Company has not given any loan or advance to the companies, firms or other partieslisted in the register maintained under section 301 of the Companies Act, 1956 during theyear.

The terms and conditions of such loans are, in our opinion, prima facie not prejudicalto the interest of the Company.

(iv) 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 Companyand the nature of its business for the purchase of inventory, fixed assets and also forthe sale of goods and services.

(v) According to the information and explanations provided by the management, we are ofthe opinion that there were no contracts or arrangements during the year that need to beentered into the register maintained under section 301 of the Act.

(vi) The Company has not accepted any deposits from the public to which the directivesissued by the Reserve Bank of India and the provisions of section 58A of the Act and therules framed there under apply.

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

(viii) In respect of maintenance of cost records under clause (d) of sub-section (1) ofsection 209 of the act for the products of the Company. We based on our examination of thecompany's records are of the opinion that the Company is not required to maintain the costrecords prescribed under section 209(1)(d).

(ix) (a) According to the records of the company, undisputed statutory dues includingInvestor Education and Protection Fund, Income-tax, Service Tax, Sales-Tax, Custom Duty,Excise-Duty, Cess and other statutory dues have been regularly deposited with theappropriate authorities except the company is irregular in depositing the dues related toprovident fund, water cess and TDS with the appropriate authorities. However, there is anarrear of Rs. 7,26,009/- w.r.t. Provident fund, Rs. 7,63,989.73 w.r.t. Water Cess and Rs.38,092/- w.r.t. TDS as on 31.03.2010 and no other undisputed amounts payable in respect ofaforesaid dues were outstanding as at 31^st March, 2010 for a period of morethan six months from the date of becoming payable.

(b) According to the records of the company, there are no dues of Custom duty, WealthTax, Excise Duty, Cess which has not been deposited on account of any dispute except :

1. Income tax (Penalty) demand of Rs. 2,16,322/- for the Asst Year 1996-97, the matterfor which is pending before Hon'ble Delhi High Court.

2. Income tax (Penalty) demand of Rs. 2,69,105/- for the Asst Year 1995-96, the matterfor which is pending before Hon'ble Delhi High Court.

3. Water Cess - Rs. 2,29,891/- pending under appeal.

4. Sales Tax - Rs. 6,46,883/- pending under appeal.

(x) The accumulated losses of the company have exceeded Fifty percent of its net worthas at 31^st March, 2010. The Company has not incurred any cash losses during thefinancial year covered by our Audit and also not incurred any cash loss in the immediatelypreceeding F.Y. in arriving at the accumulated losses and the net worth we have consideredthe qualifications which are quantifiable in the Audit Report of the year which theselocess pertain.

(xi) The Company has defaulted in repayment of dues to financial institutions. TheCompany had already paid the OTS amount of UPFC loan during the previous year. But inrespect of the DADP Interest demanded by UPFC (i.e. Rs. 66.28 lacs) vide its letter dated15.02.2010, the Company has requested for a waiver of 75% vide its letter dated 17.05.2010which is still pending before BIFR Board. However, as per the previous DADP demand of Rs.59.27 Lacs, the Company has already paid Rs. 14.82 lacs till 31.03.2010.

During the previous year, the Company had requested for OTS with PICUP at Rs. 235 lacswhich was not approved by them. Though as per the directions given by BIFR, the Companylaid down the new OTS proposal on 19.07.2010 for final settlement and reduce the previousOTS to Rs. 175 lacs on the basis of new OTS Policy of PICUP. The Company has already paidRs. 37 lacs in the F.Y. 2003-04. Further, after the detail explanation sort by PICUPregarding deduction in amount of OTS, the Company again laid down the detailed proposalwith reasons on 05.08.2010 for reconsidering the OTS at Rs. 175 lacs.

No confirmation of closing balance was available in respect of above loans. Hence, noprovision of interest was made in the books in respect of UPFC & PICUP Loan.

(xii) The Company has not granted loans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

(xiii) The nature of activities of the Company does not attract any special statuteapplicable to chit fund and nidhi/mutual benefit fund/societies.

(xiv) The Company do,es not deal or trade in shares, securities, debentures and otherinvestment.

(xv) According to the information and explanations given to us, the Company has notgiven a guarantee for a loan taken by a third party from a bank or financial institutions.

(xvi) According to the record of the company, the company has not obtained any termloans during the year.

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

xviii) According to the records of the Company and information and explanationsprovided by the management, the company has not made any preferential allotment of sharesto parties and companies covered in the register maintained under section 301 of theCompanies Act, 1956 during the year.

(xix) According to the record of the company, the company has not issued any debenturesduring the year.

(xx) The Company has not raised any money by public issue during the period covered byour Audit Report.

(xxi) Based upon Audit procedures performed and information and explanation given bythe management we report that no fraud on or by the Company has been noticed or reportedduring the course of Audit.