ISGEC Heavy Engineering Ltd

The Saraswati Industrial Syndicate Limited

We have audited the attached Balance Sheet of The Saraswati Industrial SyndicateLimited ('the Company') as at 30th September, 2010 and also the Profit & Loss Accountand the Cash Flow Statement (the Financial Statements) of the Company for the year endedon that date annexed thereto. These financial statements are the responsibility of theCompany'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. 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 the management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

As required by the Companies (Auditors' Report) Order, 2003 as amended by the Companies(Auditors' Report) (Amendment) Order, 2004 (Collectively the Order) issued by the CentralGovernment of India in terms of Section 227 (4A) of the Companies Act, 1956 and on thebasis of such checks as we considered appropriate and according to the information andexplanations given to us, we enclose in the Annexure a statement on the matters specifiedin paragraphs 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 purpose 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. In respect of the branchesnot visited by us, Management certified accounts have been forwarded to us for the purposeof our audit which have been appropriately dealt with.

c) The Balance Sheet, Profit & 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 & Loss Account and 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) On the basis of written representations received from the directors as on 30thSeptember, 2010 and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on 30th September, 2010 from being appointed as a director interms of clause (g) of sub section (1) of section 274 of the Companies Act, 1956.

f) In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read with the Accounting policies and Notes thereon givethe information required by the Companies Act, 1956 in the manner so required and give atrue and fair view in conformity with the accounting principles generally accepted inIndia;

i) In the case of Balance Sheet, of the state of affairs of the Company as at 30thSeptember, 2010;

ii) In the case of Profit and Loss Account, of the Profit for the year ended on thatdate; and

iii) In the case of Cash Flow Statement, of the cash flows for the year ended on thatdate.

(Annexure referred to in our report of even date)

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

(b) Verification of the fixed assets is being conducted based on a programme by themanagement designed to cover all assets over a period of three years except for thecertain building and vehicle situated in Pakistan (written down value Rs. 1 /-), which, inour opinion, is reasonable having regard to the size of the company and nature of itsbusiness. No major discrepancies were noticed as compared to book records and necessaryadjustments have been carried out in the books of account.

(c) Fixed assets disposed off during the year were not substantial.

2. (a) The inventory has been physically verified during the year by the management atreasonable intervals in respect of finished goods, stores and spare parts and rawmaterial. Further, stock in the possession and custody of third parties and stock intransit as at 30th September, 2010 have been verified by the management with reference toconfirmation or statement of accounts or correspondence with third parties or subsequentreceipt of goods. In our opinion, the frequency of such verification is reasonable.

(b) The procedures for the physical verification of inventory followed by themanagement are, in our opinion, reasonable and adequate in relation to the size of theCompany and nature of its business.

(c) In our opinion, the Company is maintaining proper records of inventory. Thediscrepancies noticed on physical verification of inventory as compared to book recordswere not material and have been properly dealt with in the books of account.

3. (a) The company has taken unsecured loans of Rs. 56.50 lacs in the form of fixeddeposits from its four Directors and one related party, the terms & conditions ofwhich are, prima facie, not prejudicial to the interest of the company. Maximum amountoutstanding during the year and year end balance of such loans are Rs. 56.50 Lacs. Thereare no other loans, secured or unsecured, from companies, firms or other parties listed inthe register maintained under section 301 of the Companies Act, 1956.

(b) In respect of the above unsecured loans, the company is regular in repayment of theprincipal amount and interest due thereon as per the terms of the acceptance. There are nooverdue amounts at the year end.

(c) The company has granted unsecured loan to its two subsidiary companies listed inthe register maintained under section 301 of the Companies Act, 1956. Apart from theseloans, the company has not granted any other loans, secured or unsecured, to companies,firms or other parties listed in the register maintained under section 301 of theCompanies Act, 1956.

(d) The maximum amount outstanding during the year is Rs. 8,343.60 Lacs and year endbalances of such loans are Rs.1,539.35 Lacs. In our opinion, the rate of interest andother terms & conditions of such loan are prima facie, not prejudicial to the interestof the company.

(e) In respect of the aforesaid loans, the Companies were regular in payment ofinterest. We are explained that these loans are repayable on demand and, therefore, thereare no overdue amounts at the year end.

4. In our opinion, and according to the information and explanations given to us duringthe course of audit, there are adequate internal control systems commensurate with size ofthe Company and the nature of its business with regard to purchase of inventory and fixedassets and for the sale of goods and services. Further, on the basis of our examination ofthe books & records of the company, carried out in accordance with the generallyaccepted auditing practices in India, we have neither come across nor have we beeninformed of any instance of major weaknesses in the aforesaid internal control systems.

5. (a) To the best of our knowledge and according to the information and explanationsgiven to us, we are of opinion that particulars of contracts or arrangements that need tobe entered into the register maintained under section 301 of the Companies Act, 1956 havebeen so entered.

(b) In our opinion, and according to the information and explanations given to us, thetransactions with parties pursuant to the contracts or arrangements entered into in theregister maintained under Section 301 of the Companies Act, 1956 and exceeding the valuesof Rupees five lakhs in respect of each party have been entered into during the financialyear, are at prices, which are reasonable, having regard to the prevailing market price atthe relevant time where such market prices are available.

6. In our opinion and according to information and explanations given to us, theprovisions of section 58A and 58AA or any other relevant provisions of the Companies Act,1956 including the Companies (Acceptance of Deposit) Rules, 1975 have been complied within respect of fixed deposits accepted from the public.

7. In our opinion, the Company has an in-house internal audit system commensurate withthe size & nature of its business.

8. We have broadly reviewed the Cost Accounting records, maintained by the Companypursuant to the Rules prescribed by the Central Government for the maintenance of costrecords under clause (d) of sub-section (1) of section 209 of the Act and are of theopinion that, prima facie, the prescribed accounts and records have been made andmaintained. We are, however, not required to make a detailed examination of such books andrecords.

9. (a) In our opinion and according to the information and explanations given to us,according to the records of the Company, undisputed statutory dues including ProvidentFund, Investor Education and Protection Fund, Employees State Insurance, Income tax, Salestax, Wealth-tax, Service Tax, Custom Duty, Excise Duty, Cess and other material statutorydues, wherever applicable, have been regularly deposited with the appropriate authoritiesand there are no such undisputed statutory dues payable for a period of more than sixmonths from the date they became payable as at 30th September, 2010.

(b) According to the information and explanations given to us and as per the books andrecords examined by us, there are no dues of Wealth Tax, Custom Duty, and Income Tax whichhave not been deposited on account of any dispute, except the following in respect ofdisputed Excise Duty, Sales Tax, Service Tax and Cess along with the forum where disputeis pending:

10. There are no accumulated losses of the Company as at the end of the financial year.There are no cash losses during the financial year and in the immediately precedingfinancial year.

11. According to the information and explanations given to us and as per the books andrecords examined by us, the Company has not defaulted in repayment of dues to anyfinancial institution or bank.

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

13. The Company does not fall within the category of Chit fund / Nidhi / Mutual Benefitfund / Society and hence the related reporting requirements of the Order are notapplicable.

14. According to the information and explanations given to us, the Company is notdealing or trading in shares, securities, debentures and other investments and hence therelated reporting requirements of the Order are not applicable.

15. According to the information and explanations given to us, the Company has notgiven any guarantees for loans taken by others from banks or financial institutions.

16. In our opinion and according to the information and explanations given to us, theterm loans raised during the year by the Company have been applied for the purpose forwhich the said loans were obtained, where the lenders have stipulated such end use.

17. According to the information and explanations given to us and as per the books andrecords examined by us, on an overall examination of the Balance Sheet of the company, thefunds raised by the Company on short-term basis have not been applied for long-terminvestment.

18 The Company has not made any preferential allotment of shares to parties andCompanies covered in the register maintained under section 301 of the Companies Act, 1956.

19. The company has not issued any secured debentures during the year nor are there anysecured debentures outstanding at the year end.

20. The Company has not raised any money by way of public issues during the year.

21. During the course of our examination of the books and records of the Companycarried out in accordance with the generally accepted auditing practices in India, we haveneither come across any instance of fraud on or by the Company, noticed and reportedduring the year, nor have we been informed of such case by the management.