GAIL (India) Ltd

to the Shareholders of GAIL (India) Limited

We have audited the attached Balance Sheet of GAIL (India) Limited as at 31st March.2010. the Profit and Loss Account and Cash Flow Statement of the company for the yearended on that date annexed thereto. These financial statements are the responsibility ofthe Company's management. Our responsibility is to express an opinion on these financialstatements based on our audit.

We have conducted our audit in accordance with auditing standards generally accepted inIndia. These 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.

As required by the statement on the Companies (Auditor's Report) order.2003 issued bythe Central Government of India in terms of sub-section (4A) of Section 227 of theCompanies Act. 1956. we enclose in the Annexure a statement on the matters specified inparagraphs 4 and 5 of the said Order.

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 and Profit & Loss Account and the Cash Flow Statement dealtwith by this report are in agreement with the books of account;

d. in our opinion, the Balance Sheet. Profit and Loss Account and the Cash FlowStatement dealt with by this report comply with the Accounting Standards referred to insub-section (3C) of section 211 of the Companies Act. 1956;

e. Disclosure in terms of clause (g) of sub-section (1) of Section 274 of the CompaniesAct, 1956 is not required as per notification no. GSR 829(E) dated October 21,2003 issuedby the Department of Company Affairs.

f. In our opinion and to the best of our information and according to the explanationsgiven to us, the said financial statements read together with the significant accountingpolicies and notes thereon give the information required by the Companies Act, 1956, inthe 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 31stMarch, 2010;

b) in the case of the Profit & Loss Account, of the profit for the year ended onthat date; and

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

Annexure to the Auditor's Report

The Annexure referred to in the auditor's report to the shareholders of GAIL (India)Limited for the year ended March 31,2010. We report that:

(i) (a)The company has generally maintained proper records showing full particularsincluding quantitative details and situation of fixed assets.

(b) According to the information and explanation given to us, there is a regularprogramme of verification of fixed assets which, in our opinion, is reasonable havingregard to the size of the company and the nature of its assets. Fixed assets have beenphysically verified by the management during the year and no material discrepancies werenoticed on such verification.

In our opinion, there was no substantial disposal of fixed assets during the year.

(ii) The inventories have been physically verified at reasonable intervals by theManagement, except the stores & spares lying with Engineers India Ltd. and othercontractors. We have been explained that the stock of gas at the end of the year has beentaken with reference to reading of Turbine Flow Meter/Gas Chromatograph installed atTerminals, Stock of LPG/Pentane/SBP Solvent are determined with reference to Tank LevelGauge measurement which are converted into tonnage by measurement of density and applyingcorrection factor for temperature. LPG vapour volume is converted to tonnage by standardformulae.

In our opinion and according to the information and explanations given to us. theprocedures of physical verification of inventory followed by the Management are reasonableand adequate in relation to the size of the Company and nature of its business.

According to the information and explanations given to us, no material discrepancieshave been noticed on physical verification of inventories as compared to the books andrecords.

(iii) The Company has neither granted nor taken any loans secured or unsecured, to orfrom companies, firms or other parties covered in the register maintained under Section301 of the Companies Act, 1956.

(iv) in our opinion, and according to information and explanations given to us, thereare adequate internal control procedures to commensurate with the size of the company andthe nature of its business for the purchase of inventory and fixed assets and for the saleof goods and services.

(v) On the basis of our examination of the books of accounts, and as per informationand explanation given to us, the company has not made any transactions in respect of anyparty during the financial year that needs to be entered in the register pursuant to thesection 301 of the Companies Act. 1956.

(vi) The company has not accepted any deposits from the public during the year coveredunder section 58A and 58AA or any other relevant provision of the Companies Act, 19S6.

(vii) in our opinion, the company's internal audit system is commensurate with its sizeand nature of its activities.

(viii) We have broadly reviewed the books of Accounts maintained by the

Company pursuant to the order made by the Central Government for the maintenance ofCost records under Section 209(l)(d) of the Companies Act, 1956 and we are of the opinionthat prima facie the prescribed accounts and records have been maintained. We have not,however, made a detailed examination of these records.

(ix) (a) According to the records of the company, the company is generally regular indepositing undisputed statutory dues including Provident fund, investor Education andProtection Fund, Employees' State insurance. Sales tax, Wealth tax, Service Tax, Customduty. Excise duty, cess and any other statutory dues with the appropriate authorities.According to the information and explanation given to us, no undisputed amounts payable inrespect of Sales tax, Service Tax, Custom duty, Excise duty and other statutory dues wereoutstanding at the year end for a period of more than six months from the date they becomepayable.

(b) As certified by the Management on which we have relied upon, the dues of ExciseDuty, Custom Duty. Entry Tax, Sales Tax and other Taxes which have not been deposited onaccount of disputes and the forum where the dispute is pending, are given below:

(Rs. in Crores)

(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 procedure and on the information and explanations given by themanagement, we are of the opinion that the company has not defaulted in repayment of duesto a financial institution, bank and debenture holders.

(xii) In our opinion, the company has not granted loans and advances on the basis ofsecurity by way of pledge of shares, debentures and other securities other than to itsemployees. In our opinion, the company has maintained adequate documents and records inrespect of such loans.

(xiii) The company is not a chit fund, nidhi, mutual benefit fund or a society.Accordingly, clause 4(xiii) of the order not applicable.

(xiv) According to the information and explanation given to us, the company is notdealing or trading in shares, securities, debentures and other investments. Accordingly,clause 4 (xiv) of the order is not applicable.

(xv) According to the information and explanation given to us, the company has notgiven any guarantee for loans taken by others from banks and financial institutions duringthe year.

(xvi) On the basis of review of utilization of funds pertaining to term loans onoverall basis and related information as made to us. the term loans taken by the companyhave been utilized for the purposes for which they are obtained.

(xvii) According to the information and explanation given to us. company has not raisedany short term loan during the year.

(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 has not issued any debentures during the year.

(xx) During the year no money has been raised by public issues.

(xxi) According to the information and explanations given to us. no fraud on or by thecompany has been noticed or reported during the year.