Grindwell Norton Ltd

TO THE MEMBERS OF

GRINDWELL NORTON LIMITED

1. We have audited the attached Balance Sheet of GRINDWELL NORTON LIMITED, as at31st March, 2011, the Profit and Loss Account and the Cash Flow Statement of the Companyfor the year ended on that date annexed thereto. These financial statements are theresponsibility 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 principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003, issued by theCentral Government in terms of sub-section (4A) of Section 227 of the Companies Act, 1956,we annex hereto a statement on the matters specified in paragraphs 4 and 5 of the saidOrder.

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 such books.

(c) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt withby 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) In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read with the notes thereon, give the information requiredby the Companies Act, 1956, in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31stMarch, 2011;

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

(iii) in the case of the Cash Flow Statement, of the cash flows of the Company for theyear ended on that date.

5. On the basis of the written representations received from the directors as on 31stMarch, 2011, and taken on record by the Board of Directors, we report that, none of thedirectors is disqualified as on 31st March, 2011 from being appointed as a director interms of Clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS’ REPORT

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

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

(b) As explained to us, the Company has a programme for physical verification of fixedassets at periodic intervals. In our opinion, the period of verification is reasonablehaving regard to the size of the Company and the nature of its assets. No materialdiscrepancies have been reported on such verification.

(c) In our opinion, the disposal of fixed assets during the year does not affect thegoing concern assumption.

(2) (a) The Management has conducted physical verification of inventory at reasonableintervals.

(b) In our opinion, the procedures for the physical verification of inventory followedby the management are reasonable and adequate in relation to the size of the Company andthe nature of its business.

(c) The Company is maintaining proper records of inventory. The discrepancies noticedon verification between physical inventories and book records were not material inrelation to the operations of the Company and the same have been properly dealt with inthe books of account.

(3) (a) The Company has granted unsecured loans to two parties covered in the registermaintained under Section 301 of the Companies Act, 1956. ("the Act"). The amountoutstanding at the year end is Rs. 300.40 lakh and the maximum amount outstanding at anytime during the year was Rs. 336.41 lakh.

(b) The rate of interest and other terms and conditions of the loans granted are notprejudicial to the interest of the Company.

(c) The payment of principal amount and interest are regular.

(d) There is no overdue amount in respect of loans granted to the parties listed in theregister maintained under Section 301 of the Act.

(e) The Company has not taken any loan, secured or unsecured, from companies, firms orother parties covered in the Register maintained under Section 301 of the Act.

(f) Consequently, the question of commenting on the rates of interest and other termsand conditions of the loans taken being prejudicial to the interests of the Company,payment of regular principal and the interest does not arise.

(4) In our opinion and according to the information and explanations given to us, thereare adequate internal control procedures commensurate with the size of the Company and thenature of its business with regard to the purchases of inventory, fixed assets and for thesale of goods and services. During the course of our audit, no major weakness has beennoticed in internal controls.

(5) Based on the audit procedures applied by us and according to the information andexplanations provided by the management, we are of the opinion that there are notransactions that need to be entered into the register maintained under Section 301 of theAct.

(6) In our opinion and according to the information and explanations given to us, theCompany has not accepted any deposits from the public hence the provisions of Section 58Aand 58AA or any other relevant provisions of the Act are not applicable.

(7) In our opinion and according to the information and explanations given to us, theinternal audit system is commensurate with the size of the Company and nature of itsbusiness.

(8) The maintenance of cost records has not been prescribed by the Central Governmentunder Section 209(1)(d) of the Act, in respect of the activities carried on by theCompany.

(9) (a) According to the information and explanations given to us and on the basis ofour examination of books of accounts, during the year, the Company has been generallyregular in depositing undisputed statutory dues including Provident Fund, InvestorEducation and Protection Fund, Employees’ State Insurance, Income Tax, Value AddedTax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and any other dueswith the appropriate authorities. According to the information and explanations given tous, there are no undisputed dues, payable in respect of above as at 31st March, 2011 for aperiod of more than six months from the date they became payable.

(b) According to the information and explanations given to us, there are no duesoutstanding of Value Added Tax, Sales Tax, Income Tax, Customs Duty, Wealth Tax, Servicetax, Excise Duty or Cess on account of any dispute, other than the following:

(10) The Company does not have accumulated losses at the end of the financial year andhas not incurred any cash losses in the current year and immediately preceding financialperiod.

(11) According to the information and explanations given to us and based on thedocuments and records produced to us, the Company has not defaulted in repayment of duesto banks. The Company does not have dues to financial institutions or debenture holders.

(12) According to the information and explanations given to us, the Company has notgranted loans and advances on the basis of security by way of pledge of shares, debenturesand other securities.

(13) In our opinion and according to the information and explanations given to us, thenature of activities of the Company does not attract any special statute applicable tochit fund and nidhi/ mutual benefit fund/ societies.

(14) In our opinion and according to the information and explanations given to us, theCompany does not deal or trade in shares, securities, debentures and other investments.

(15) According to the information and explanations given to us and based on thedocuments and records produced to us, the Company has given a corporate guarantee forloans taken by the subsidiary from banks. The terms and conditions of the guarantee arenot prejudicial to the interest of the Company.

(16) There were no term loans raised during the year.

(17) According to the information and explanations given to us and on an overallexamination of the Balance Sheet and Cash Flows of the Company, we report that the Companyhas not utilized funds raised on short-term basis for long-term investment.

(18) The Company has not made any preferential allotment of shares to parties orcompanies covered in the register maintained under Section 301 of the Act.

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

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

(21) Based on the audit procedures performed and information and explanations given andrepresentations made by the Management, we report that no fraud on or by the Company hasbeen noticed or reported during the year.