Hindustan Petroleum Corporation Ltd

TO THE MEMBERS OF HINDUSTAN PETROLEUM CORPORATION LIMITED

1. We have audited the attached Balance Sheet of Hindustan Petroleum CorporationLimited as at March 31, 2010, and also the Profit and Loss Account and the Cash FlowStatement of the Company for the year ended on that date annexed thereto in which areincorporated Accounts of the Branch audited by the Branch Auditor. These financialstatements are the responsibility of the Company’s management. Our responsibility isto 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. These Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatements. 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 as amended byCompanies (Auditor’s Report) (Amendment) Order, 2004 (together ‘theOrder’), issued by the Central Government of India in terms of subsection (4A) ofsection 227 of the Companies Act,1956, we give in the Annexure, a statement on the mattersspecified in paragraph 4 and 5 of the said Order.

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

(a) We have obtained all the information and explanations which, to the best of ourknowledge and belief, were necessary for the purpose of the 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 these books, and proper returns,adequate for the purposes of our audit, have been received from the branch not visited byus;

(c) The Branch Auditors’ report, made available to us, has been appropriatelydealt with while preparing our report;

(d) The balance sheet, profit and loss account and cash flow statement dealt with bythis report are in agreement with the books of account and with the audited returns fromthe branch;

(e) The balance sheet, profit and loss account and cash flow statement dealt with bythis report comply with the Accounting Standards referred to in sub-section (3C) ofSection 211 of the Companies Act, 1956;

(f) Disclosure in terms of clause (g) of sub-section (1) of Section 274 of theCompanies Act, 1956 is not required for Government Companies as per Notification No. GSR829(E) dated October 21, 2003 issued by the Department of Company Affairs.

(g) In our opinion, and to the best of our information and according to theexplanations given to us, the said accounts read together with notes thereon, give theinformation required by the Companies Act, 1956, in the manner so required and give a trueand fair view 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 atMarch 31, 2010; (ii) in the case of the profit and loss account, of the profit for theyear ended on that date; and (iii) in the case of the cash flow statement, of the cashflows for the year ended on that date.

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 except for items likes pipes, valves,meters, instruments and other similar items peculiar to a continuous process industry.

(b) As explained to us, the Company, having regard to the size and nature of itsbusiness, has adopted a practice of carrying out physical verification of its fixedassets, except LPG cylinders and fixed assets of the erstwhile Kosan Gas Companyundertaking, not handed over, on a staggered basis, over a period of five years in thecase of furniture, fixtures and office equipment and over a period of three years in thecase of Plant and Machinery and other assets. We were informed that discrepancies noticedon such verification were not material as compared to the book records and have beenproperly dealt with in the books of account. The existence of fixed assets situated at theresidence of employees has, however, been ascertained on a self-declaration basis.

(c) Fixed Assets disposed off during the year were not substantial and, therefore, donot affect the going concern assumption.

2. (a) As explained to us, the inventories were physically verified during the year bythe Management at reasonable intervals. In the case of materials lying with third parties,certificates confirming stocks held have been received from them.

(b) 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 the nature of its business.

(c) In our opinion and according to the information and explanations given to us, theCompany has maintained proper records of inventory. We were informed that discrepanciesnoticed on physical verification, as compared to the book records, were not material andhave been properly dealt with in the books of account.

3. Based on the audit procedures applied by us and according to the information andexplanations given to us, the Company has neither granted nor taken loans, secured orunsecured to or from companies, firms or other parties covered in the register maintainedunder Section 301 of the Companies Act, 1956. Consequently, sub clauses (b), (c), (d),(e), (f) and (g) of sub-para (iii) of para 4 of the Order are not applicable.

4. In our opinion and according to the information and explanations given to us, andhaving regard to the explanations that some of the items are of a specialized nature, inrespect of which suitable alternative sources do not exist for obtaining comparativequotations, there are adequate internal control procedures commensurate with the size ofthe Company and nature of its business for the purchase of inventory and fixed assets andfor the sale of goods and services.

5. In our opinion and according to the information and explanations given to us, thereare no contracts and arrangements referred to in Section 301 of the Companies Act, 1956entered into during the year that need to be entered in the register maintained under thatSection. Accordingly, sub clause (b) of sub-para (v) of para 4 of the Order is notapplicable to the Company for the current year.

6. In our opinion, and according to the information and explanations given to us, theCompany has complied with the directives issued by the Reserve Bank of India and theprovisions of Section 58A and Section 58AA or any other relevant provisions of theCompanies Act, 1956, and the rules framed thereunder with regard to deposits accepted fromthe public. We have been informed that no order has been passed by the Company Law Boardor National Company Law Tribunal or Reserve Bank of India.

7. In our opinion, the Company has an internal audit system commensurate with its sizeand the nature of its business.

8. We have broadly reviewed the books of account maintained by the Company in respectof products where, pursuant to the Rules made by the Central Government, the maintenanceof cost records has been prescribed under Section 209 (1) (d) of the Companies Act, 1956.We are of the opinion that prima facie the prescribed accounts and records havebeen maintained and are being made. We have not, however, made a detailed examination ofthe records with a view to determine whether they are accurate or complete.

9. (a) According to the information and explanations given to us and on the basis ofour examination of the books of account, the Company has, during the year, been generallyregular in depositing with the appropriate authorities, undisputed statutory dues,including Provident Fund, Investor Education and Protection Fund, Income Tax, Sales Tax,Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and any other material statutorydues. (b) According to the information and explanations given to us and on the basis ofour examination of the books of account, no undisputed amounts payable in respect ofIncome Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess were inarrears, as at March 31, 2010, for a period of more than six months from the date theybecame payable.

(c) According to the information and explanations given to us, dues relating to Incometax, Sales tax, Custom duty, Service tax, Excise duty which have not been deposited onaccount of disputes with the related authorities, have been reflected in the table below:

10. The Company does not have any accumulated losses at the end of the financial yearand has not incurred cash losses in the financial year and in the financial yearimmediately preceding such financial year.

11. According to the information and explanations given to us, and based on checkscarried out by us, the Company has not defaulted in repayment of dues to financialinstitutions, banks 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 information and explanations given to us, theCompany is not a chit fund or a nidhi/mutual benefit fund/society. Therefore theprovisions of sub-para (xiii) of para 4 of the Order are not applicable to the Company.

14. According to the information and explanations given to us, the Company is notdealing or trading in shares, securities, debentures and other investments. Therefore theprovisions of sub-para (xiv) of para 4 of the Order are not applicable to the Company.

15. In our opinion and according to information and explanations provided to us, theCompany has not given guarantees for loans taken by others from banks and financialinstitutions.

16. In our opinion and according to information and explanations given to us, the termloans taken during the year, prima facie, have been applied for the purpose forwhich they were raised.

17. According to the information and explanations given to us, and based on our overallexamination of Balance Sheet and considering investment in "Oil Bonds" issued bythe Government of India towards under-recoveries on sale of sensitive petroleum productsas short term application of funds, funds raised on short- term basis have, prima facie,not been used for making long-term investments.

18. According to the information and explanations given to us, during the year theCompany has not made any preferential allotment of shares to parties and companies coveredin the Register maintained under Section 301 of the Companies Act, 1956.

19. The Company has created necessary securities or charge as per the debenture trustdeed in respect of debentures issued and outstanding at the year end.

20. The Company has not raised any money by way of public issue during the financialyear.

21. According to information and explanations given to us and based on audit proceduresperformed and representations obtained from the management, we report that no materialfraud on or by the Company, has been noticed or reported during the year under audit.