Hindustan Hardy Spicer Ltd

TO

THE MEMBERS OF HINDUSTAN HARDY SPICER LIMITED

We have audited the attached Balance Sheet of Hindustan Hardy Spicer Limited as at 31stMarch, 2010, and also the Profit and Loss Account and the Cash Flow Statement of theCompany for the year ended on that date both annexed thereto. These financial statementsare the responsibility of the Company's Management. Our responsibility is to express anopinion on these financial statements based on our audit.

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.

1. As required by the Companies (Auditor's Report) Order, 2003 issued by the CentralGovernment of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose inthe Annexure a statement on the matters specified in paragraphs 4 & 5 of the saidOrder.

2. Further to our comments in the Annexure referred to in paragraph 1 above; we reportthat:

a. We have obtained all informations and explanations, which to the best of our know)edge and belief were necessary for the purpose of our audit.

b. In our opinion, proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.

c. The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account.

d. In our opinion, the Balance Sheet; Profit and Loss Account and Cash Flow Statementdealt with by this report are in compliance with the Accounting Standards referred to inSection 211(3C) of the Companies Act, 1956.

e. On the basis of written representations received from the directors and taken onrecord by the Board of Directors, we report that none of the directors from whom suchrepresentations have been received is disqualified as on March 31, 2010 from beingappointed as a director in terms of clause (g) of sub-section (1) of Section 274 of theCompanies Act, 1956; and

f. Attention is invited to Note No. 4(ii) of Schedule 18 regarding pending approval ofthe Central Government in respect of the remuneration paid to chairman exceeding thelimits prescribed under the Companies Act 1956.

g. In our opinion and to the best of our information and according to explanationsgiven to us, the said accounts subject to paragraph (f) above give the informationrequired by the Companies Act, 1956, in the manner so required and give a true and fairview in conformity 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, 2010.

ii) In the case of the Profit & 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 for the year ended onthat date.

ANNEXURE TO AUDITORS' REPORT

(Referred to in paragraph 1 of our report of even date)

The nature of the Company's business / activities during the year is such that clauses(vi), (x), (xiii) and (xiv) of paragraph 4 of the Companies (Auditor's Report) Order, 2003are not applicable to the Company.

(i) In respect of its fixed assets:

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

b) Some of the fixed assets were physically verified during the year by the Managementin accordance with a programme of verification, which in our opinion provides for physicalverification of all the fixed assets at reasonable intervals. According to the informationand explanations given to us no material discrepancies were noticed on such verification.

c) During the year the Company has not disposed off any substantial part of its fixedassets. Therefore, it has not affected the going concern assumption of the Company.

(ii) In respect of its inventories:

a) As explained to us, inventories were physically verified during the year by 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) a) According to the information and explanations given to us, during the year theCompany has not granted unsecured loans to any party covered in the register maintainedu/s 301 of the Companies Act 1956. Accordingly sub-clauses (b) to (d) are not applicable.

b) According to the information and explanations given to us, the Company has not takenloans, secured or unsecured, from companies, firms or other parties covered in theregister maintained u/s 301 of the Companies Act 1956 Accordingly sub-clauses (f) and (g)are not applicable.

(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 the saleof goods and services and we

have not observed any continuing failure to correct major weaknesses in such internalcontrol system.

(v) In respect of contracts or arrangements entered in the register maintained inpursuance of section 301 of the Companies Act 1956, to the best of our knowledge andbelief and according to the information and explanations given to us.

a) The particulars of contracts or arrangements referred to in Section 301 of theCompanies Act, 1956 have been entered in the register required to be maintained under thatSection.

b) Excluding certain transactions of purchase of goods of special nature for whichalternate quotations are not available, where each of such transactions is in excess ofRs. 5 lakhs in respect of any party, the transactions have been made at price which areprima facie reasonable having regard to the prevailing market price at the relevant time.

(vi) In our opinion, the internal audit functions carried out during the year by a firmof Chartered Accountants appointed by the Management have been commensurate with the sizeof the Company and the nature of its business.

(vii) We have broadly reviewed the books of account and records maintained by theCompany relating to the manufacture of automotive parts and accessories, pursuant to therules by the Central Government for the maintenance of cost records u/s 209(1) (d) of theCompanies Act, 1956 and are of the opinion t'rat prima facie the prescribed accounts andrecords have been made and maintained. We have, however, not made a detailed examinationof the records with a view to determining whether they are accurate or complete. To thebest of our knowledge and according to the information and explanations given to us, theCentral Government has not prescribed the maintenance of cost records u/s 209(1) (d) ofthe Companies Act, 1956 for any other products of the Company.

(viii) In respect of Statutory dues:

a) According to the information and explanations given to us, the Company has beengenerally regular in deposition undisputed Statutory dues, including Provident Funds,Investor Education and Protection Fund, Employees' State Insurance, Income Tax, Sales Tax,Service Tax, Custom Duty, Excise duty, Cess and any other material statutory dues with theappropriate authorities. There are no arrears at the year end.

b) According to the information and explanations given to us, details of disputedstatutory dues pertaining to income tax, sales tax, wealth tax, service tax, customs duty,excise duty, octroi and cess which have not been deposited as on 31st March 2010 onaccount of any dispute are given below:

** Subject to reduction as order giving effect to Commissioner of Income Tax (Appeals)is awaited.

(ix) In our opinion and according to the information given to us, the Company,has notdefaulted in repayment of dues to banks.

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

(xi) According to the information and explanations given to us, the company has notgiven any guarantees for loans taken by others from banks and financial institutions andthus the question of whether the terms and conditions are prima facie prejudicial tointerest of company does not arise.

(xii) In our opinion and according to the information given to us, the term loan raisedby the Company has been applied for the purpose for which the loan was obtained.

(xiii) In our opinion and according to the information and explanations given to us,and on an overall examination of the balance sheet of the Company, funds raised on shortterm basis have prima facie, not been used during the year for long term investment.

(xiv) According to the information and explanations given to us, the company has notmade any preferential allotment of shares to parties and companies covered in the Registermaintained u/s 301 of the Companies Act, 1956, during the year and hence the question ofwhether the price at which shares have been issued is prejudicial to interest of companydoes not arise.

(xv) To the best of our knowledge and according to the information and explanationsgiven to us, the Company has not issued any debentures and hence the question of whethersecurity has been created for debentures issued does not arise.

(xvi) As informed to us, the Company has not raised monies by public issues during theyear and hence the question of disclosure and verification of end use of such monies doesnot arise.

(xvii) To the best of our knowledge and belief and according to the information andexplanations given us, no fraud on or by the Company was noticed or reported during theyear.