Milkfood Ltd

TO THE MEMBERS OF MILKFOOD LIMITED

1. We have audited the attached Balance Sheet of Milkfood Limited as at 31^aMarch, 2010 and also the Profit and Loss Account and the Cash Flow Statement for the yearended on that date annexed thereto. These financial statements are the responsibility ofthe Company's management. Our responsibility is to express an opinion on these financialstatements based on our audit.

2. We have conducted our audit in accordance with 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 of material mis-statement. 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 above, we report that:

(i) We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes 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 these books except that gratuity andleave encashment are accounted for on payment basis.

(iii) The Balance sheet, Profit and loss account and Cash flow statement dealt with bythis report are in agreement with the books of account;

(iv) In our opinion, the Balance sheet, Profit and loss account and Cash flow statementdealt with by this report comply with the accounting standards referred to in sub-section(3C) of section 211 of the Companies Act, 1956 except that gratuity and leaveencashment are accounted for on payment basis.

(v) On the basis of written representations received from the directors as on 31^stMarch 2010 and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on 31^st March 2010 from being appointed as adirector in terms of clause (g) of sub-section (1) of section 274 of the Companies Act,1956.

(vi) In our opinion and to the best of our information and according to the explanationgiven to us, the said accounts give the information required by the Companies Act, 1956 inthe manner so required and read with Note 7 regarding accounting of income, 11(a) &(b) regarding assets at Gurgaon, Note No. 12 regarding investment, Note 14 regardingimpairment of Assets subject to note No.8 of Schedule 18B regarding non provision ofgratuity amounting to Rs.184.72 lacs of which Rs.NIL relate to current year and Note No.12regarding Managerial Remuneration of Schedule 18A.

(a) in the case of the Balance sheet, of the state of affairs of the company as at 31^stMarch 2010;

(b) in the case of the Profit and loss account, of the loss for the year ended on thatdate; and

(c) in the case of the Cash flow statement, of the cash flows for the year ended onthat date, give a true and fair view in conformity with the accounting principlesgenerally accepted in India;

(d) We further report that had the remarks given by us in para (vi) above regarding nonprovision of gratuity has been considered, the reserve surplus would have been Rs.2964.29lacs (against the reported figure ofRs. 3149.01 lacs) Net Current Assets would havebeen Rs. 2121.59 lacs (as against reported figure of Rs. 2306.31 lacs).

Annexure to the Auditors' Report

Referred to in paragraph 3 of our report of even date to the members of MilkfoodLimited on the accounts as at and for the year ended March 31, 2010.

1. (a) The Company has maintained list of fixed assets acquired by it. However the sameis required to be updated substantially with regard to quantitative detail/location,identification etc.

(b) The fixed assets are physically verified by the management according to a phasedprogramme designed to cover all the items over a period of two years, which in ouropinion, is reasonable having regard to the size of the company and the nature of itsassets. During the year no physical verification of the fixed assets is done.

(c) In our opinion and according to the information and explanations given to us,substantial part of fixed assets has not been disposed of by the company during the year.

2. (a) The inventory has been physically verified during the year by the management. Inour opinion, the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the managementare reasonable and adequate in relation to the size of the company and the nature of itsbusiness.

(c) on the basis of our examination of the records of inventory, we are of the opinionthat the company is maintaining proper records of inventory. The discrepancies noticed onverification between the physical stocks and the book records were not material.

3. (a) The company has not granted loans to companies covered in the registermaintained under section 301 of the Companies Act, 1956. However, company has incurredexpenses on behalf of the subsidiary company. Company has granted loans to its whollyowned subsidiary for setting up IT Park and amount outstanding at the year end isRs.342.12 lacs.

The Company has taken in previous year loans from companies/parties, covered in theregister maintained under section 301 of the Companies Act, 1956. The amount outstandingat the year end is Rs. 600 lacs.

(b) In our opinion the terms and conditions of such loans are not prima facieprejudicial to the interest of the company. The other terms of repayment in respect of theloans taken/ given are not stipulated.

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 purchase of inventory, fixed assets and sale ofgoods. Further, on the basis of our examination of the books and records of the companyand according to the information and explanations given to us, we have neither comeacross, nor have been informed of any continuing failure to correct major weaknesses inthe aforesaid internal control procedures and adjustments thereof except that internalcontrol procedures in the case of advances to staff need to be strengthened.

5. In our opinion and according to explanations given to us and as certified thetransactions that need to be entered into the register maintained under section 301 havebeen so entered.

6. In our opinion and according to the information and explanations given to us and thetransactions of purchases/ sales made in pursuance of contracts or arrangements entered inthe registers maintained under section 301 and exceeding the value of five lakh rupees inrespect of any party during the year have been made at prices which are reasonable havingregard to prevailing market prices at the relevant time. With regard to financialarrangements processing charges/ other contingencies we are informed that these allrepresent specific and specialized services for which market prices are not available.However considering the cost and benefits available & other factors payments made/received are reasonable.

7. In our opinion and according to the information and explanations given to us andread with note no.5 of schedule 18B the company has complied with the directives issued bythe RBI and provisions of sections 58A and 58AA of the Companies Act, 1956 and the rulesframed thereunder with regard to the deposits accepted from the public. According toinformation and explanations given to us no order has been passed by the National CompanyLaw Tribunal or Company Law Board or RBI or any Court or any other Tribunal relevant tosections 58A, 58AA or the other relevant provisions of the Act.

8. It has been informed to us that Company has inbuilt mechanism of internal checks andall the Plants have been visited by Internal Chartered Accountant to verify theoperational systems and for safety of its Assets and other matters required by theManagement. In our opinion the Internal Audit needs to be formalized and furtherstrengthened in terms of scope, coverage and reporting.

9. In terms of Notification No.GSR 661 (E) dated 8^th October 2004 regardingCost Accounting Records (Milk Food) (Amendment) Rules, 2004 - requirement of maintainingrecords as prescribed under section 209 (1) (d) of the Companies Act, 1956 has beendispensed with.

10. (a) According to the records of the company, the company is generally regular indepositing with appropriate authorities undisputed statutory dues including providentfund, investor education & protection fund, employees' state insurance, income-tax,sales-tax, wealth tax, customs duty, excise-duty, cess and other statutory dues applicableto it with the appropriate authorities except that TDS on perquisits value in respect ofinterest free loans to employees has been made.

(b) According to the information and explanations given to us and the records of thecompany examined by us the particulars of major dues of sales-tax, income-tax, customsduty, wealth tax, excise duty and cess as at March 31, 2010 which have not been depositedon account of a dispute, are as follows:-

11. The company has NIL accumulated losses as at March 31, 2010 and it has not incurredany cash losses during the financial year ended in that date and in the immediatelypreceding financial year.

12. The company has not granted any loans and advances on the basis of security by wayof pledge of shares, debentures and other securities.

13. The provisions of any special statute applicable to chit fund/ nidhi / mutualbenefit fund/ societies are not applicable to the company.

14. In our opinion, the company is not a dealer or trader in shares, securities,debentures and other investments.

15. In our opinion, and according to the information and explanations given to us, thecompany has not given any guarantee for loans taken by others from banks or financialinstitutions during the year.

16. In our opinion, and according to the information and explanations given to us, thecompany has applied term loans for the purposes for which the loans were obtained.

17. During the year no Short Term funds have been raised.

18. The Company has not made any preferential allotment of shares to parties andcompanies covered in the register maintained under Section 301 of the Act during the year.

19. The company has not issued any debenture during the year, accordingly, nosecurities has been created.

20. The company has not raised any money by public issues during the year.

21. During the course of our examination of the books and records of the company,carried out in accordance with the generally accepted auditing practices in India, andaccording to the information and explanations given to us, we have neither come across anyinstance of fraud on or by the company, noticed or reported during the year, nor have webeen informed of such case by the management.