Gujarat Raffia Industries Ltd

To

The Members

GUJARAT RAFFIA INDUSTRIES LIMITED

AHMEDABAD

1. We have audited the attached Balance Sheet of GUJARAT RAFFIA INDUSTRIESLIMITED, as at 30^th September 2007, and also the Profit and LossAccount and the cash flow statement for the 18 months ended on that date annexed thereto.These financial 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 the 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 from 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 issued by the CentralGovernment of India in terms of sub-section (4A) of section 227 of the Companies Act,1956, we enclose in the Annexure, a statement on the matters specified in paragraphs 4 and5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we reportthat;

i. We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purpose 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 and Profit and Loss Account and Cash Flow statement dealt withby this Report are in agreement with the books of account;

iv. In our opinion, the Balance Sheet and Profit and Loss Account and Cash Flowstatement dealt with this Report comply with the Accounting Standards referred to inSub-section (3C) of section 211 of the Companies Act, 1956;

v. On the basis of written representations received from the Directors, as on 30^thSeptember, 2007 and taken on record by the Board of Directors, we report that none of theDirectors is disqualified as on 30^th September, 2007 from beingappointed as a Director in terms of Clause (g) of Sub-Section (1) of Section 274 of theCompanies 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 30^thSeptember, 2007.

(b) In the case of the Profit and Loss Account, of the profit for the 18 months endedon that date.

(c) In the case of the Cash Flow statement, of the cash flows for the 18 months endedon that date.

RE: GUJARAT RAFFIIA INDUSTRIES LIMITED AHMEDABAD

ANNEXURE

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

(i) (a) The company has maintained proper records showing full particulars includingquantitative details end situation of fixed assets.

(b) As explained to us, majority of the assets have been physically verified by themanagement during the year and there is a regular programme of verification which, in ouropinion, is reasonable having regard to the size of the company and the nature of itsassets. No material discrepancies were noticed on such verification.

(c) During the year, the company has not disposed off any major part of the FixedAssets.

(ii) (a) As explained to us the invertory has been physically verified during the yearby the management. In our opinion, the frequency of verification is reasonable.

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

(c) In our opinion and according to the information and explanations given to us thecompany is maintaining proper records of inventory. The discrepancies noticed onverification between the physical stocks and the book records were not material havingregard to size of operations of the company.

(iii) (a) The Company has not granted any loans, secured or unsecured, to companies,firms or other parties covered in the register maintained under section 301 of theCompanies Act, 1956. Hence the provisions of clause (a),(b),(c), and (d) are notapplicable to the company.

(e)The Company has taken loans from one director and four Companies having maximumbalance of Rs. 1,05,23,850/- and closing balance of Rs. 1,04,88,145/- covered in theregister maintained under section 301 of the Companies Act,1956.

(f) In our opinion and according to the information and explanations given to us, therate of interest and other terms and conditions on which loans have been taken fromcompanies or other parties listed in the register maintained under Section 301 of theCompanies Act, 1956 are not, prima facie, prejudicial to the interest of the Company.

(g) The company is regular in repaying the principal amounts as stipulated and has beenregular in the payment of interest.

(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 with regard to purchase of inventory, fixed assets and withregard to the sale of goods and services. During the course of our audit, no majorweaknesses have been noticed in the internal controls.

(v) (a) Based on the audit procedures applied by us and according to the informationand explanations provided by the management, we are of the opinion that the contracts orarrangements that need to be entered into the register required to be maintained underSection 301 of the Companies Act, 1956 have been so entered

(b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of contracts or arrangements entered in the registersmaintained under Section 301 of the Companies Act, 1956 have been made at prices which arereasonable having regard to prevailing market- prices for such services and items havebeen made with other parties.

(vi) In our opinion and according to the information and explanations given to us, thecompany has neither accepted nor renewed any deposit from the public during the periodcovered by our audit report , attracting the provisions of Section 58A and 58AA or otherrelevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits)Rules, 1975.

(vii) The Company has appointed a firm of Chartered Accountants as its InternalAuditors for the year under review The Internal Audit for the year is therefore carriedout by the said firm. In our opinion, the internal audit system is commensurate with thesize and nature of its business.

(viii) The Central Government has not prescribed maintenance of cost records undersection 209(1 )(d) of the Companies Act, 1956. Hence the provision of this clause is notapplicable to the company.

(ix) (a) According to the records of the company, the Company is generally regular indepositing undisputed statutory dues including Investor Education Protection Fund, IncomeTax, Wealth Tax, Service Tax, Custom duty, Excise duty, cess and other statutory dues withthe appropriate authorities.

(b)According to the records of the company, there are no dues of income tax, sales tax, wealth tax, service tax, custom duty, Excise duty and cess which have not been depositedon account of any dispute except the following :

(x) The Company does not have any accumulated losses at the end of the 18 months periodon 30^th September, 2007. The Company has not incurred any cash loss during thefinancial year covered by our audit. However, The Company has incurred cash loss of Rs.1,48,97,779/- in immediately proceeding financial year.

(xi) Based on our audit procedures and on the information and explanations given by themanagement and as per the restructuring of the Debt by Financial Institution, we are ofthe opinion that the company has not defaulted in repayment of dues to the banks.

(xii) The company has not granted any loans against security by way of pledge ofshares, debentures and other securities.

(xiii) The company is not a chit fund or a nidhi mutual benefit fund/society.Therefore, the provisions of this clause of the Companies (Auditor's Report) Order, 2003are not applicable to the company.

(xiv) In our opinion and according to the information and explanation given to us, thecompany is dealing in or trading in shares. The Company has maintained proper records ofthe transactions and timely entries have been made therein.

(xv) In our opinion and accordirg to the information and explanation given to us, thecompany has not given any guarantee for loans taken by others from bank or financialinstitution hence the provision of this clause is not applicable to the company.

(xvi) During the year under report, Company has not taken any term loan.

(xvii) In our opinion and according to information and explanations given to us and onan overall examination of the balance sheet of the company, we are of the opinion thatthere are no funds raised on short-term basis have been used for long-term investment bythe company.

(xviii) The company has not made any preferential allotment of shares to any partiesand companies covered under the register maintained u/s.301 of the Act.

(xix) During the period covered by our audit report, the company has not issued anydebentures.

(xx) During the period covered by our audit report, the company has not raised anymoney out of public issue.

(xxi) In our opinion and according to information and explanations given to us, nomaterial fraud on or by the company has been noticed or reported during the course of ouraudit.