Neyveli Lignite Corporation Ltd

We have audited the attached Balance Sheet of NEYVELI LIGNITE CORPORATION LIMITED,as at 31^st March 2010, the Profit and Loss Account and also the Cash FlowStatement for the year ended on that date annexed thereto. These financial statements arethe responsibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on ouraudit.

We conducted our audit in accordance with the 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.

As required by the Companies (Auditors' 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.

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 in so far as it appears from examination of those books and proper returnsadequate for the purposes of our audit have been received from Rajasthan branch notvisited by us. The Branch Auditors' Report has been forwarded to us and has beenappropriately dealt with.

(iii) 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 fromRajasthan branch.

(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 subsection(3C) of Section 211 of the Companies Act, 1956, except:

Accounting Standard AS-6, regarding Depreciation Accounting in respect of unamortiseddepreciable amount not charged over the revised remaining useful life in respect ofSpecialised Mining Equipment (SME) existing on 31.08.2007 [the date of the order of theMinistry of Company Affairs reducing the rate of depreciation for SME from 11.31% to6.33%]. Had this method of accounting been followed, the provision for depreciation forthe period would have been lower by Rs.44.77 crores. Accordingly profit for the year andfixed assets are understated to that extent.

(v) As per the Notification No.G.S.R. (E) dated 21.10.2003, issued under section 620(1) of the Companies Act 1956, clause (g) of sub-section (1) of section 274 of theCompanies Act, 1956, is not applicable to Government Companies.

(vi) As the Central Government is yet to notify Cess payable under Section 441A, thereporting requirement under Section 227(3)(g) of the Companies Act, 1956 does not arise.

(vii) Attention is invited to Note No.18 of Schedule - 22, Notes onAccounts regarding accounting of sale of power by adopting provisional tariff. Pendingfinal order on power tariff by Central Electricity Regulatory Commission (CERC),consequent adjustments, that may arise in future, are not ascertainable at this stage.

Subject to our comments in para (iv) and (vii) above, in our opinion and to the best ofour information and according to the explanations given to us, the said accounts 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;

a) In the case of Balance Sheet, of the state of affairs of the company as at 31^stMarch, 2010;

b) In the case of Profit and Loss Account, of the Profit forthe year ended on thatdate; and

c) In the case of Cash Flow Statement, of the Cash Flows forthe year ended on thatdate.

Place : Chennai

Date :27.05.2010

Annexure to the Auditors' Report

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

(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of Fixed Assets.

(b) The Company has a policy of verifying all the Fixed Assets once in five years,which is reasonable having regard to the size of the Company and nature of its assets. Asexplained to us, physical verification has not been carried out during the year. Pendingreconciliation of discrepancies observed on the physical verification done during the year2006, a sum of Rs. 0.86 crore has been retained as provision towards possible losses.

(c) During the year the Company had not disposed off substantial part of fixed assets.

(ii) (a) The inventory has been physically verified during the year by the management.In our 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) The Company is maintaining proper records of inventory. No material discrepancieswere noticed on physical verification as compared to book records.

(iii) The Company has not granted/taken any loan to/from Companies, firms and otherparties listed in the register maintained under Section 301 of the Companies Act, 1956.

(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 purchases of inventory, fixed assets andwith regard to the sale of goods. During the course of our audit, we have not observed anycontinuing failure to correct major weaknesses in internal controls.

(v) There were no transactions of purchase of goods and materials and sale of goods,materials and services in pursuance of contracts or arrangements entered in the registermaintained under Section 301 of the Companies Act, 1956 and aggregating during the yearRs.5,00,000 or more.

(vi) In our opinion and according to the information and explanations given to us, theCompany has not accepted deposits from public hence the provisions of section 58A, 58AA orany other provisions of the Companies Act, 1956 and the rules made there under are notapplicable to the Company.

(vii) In our opinion, the Company has an internal audit system commensurate with thesize and nature of its business.

(viii) The Central Government has prescribed the maintenance of records under Section209(1)(d) of the Companies Act, 1956 in respect of Thermal Power Station Units and we areof the opinion that prima facie, the books of accounts prescribed under the CostAccounting Records (Electricity Industry) Rules, 2001, have been maintained by the Companyand the proforma specified therein for the year are under preparation. We have however notcarried out a detailed verification of such records.

(ix) (a) The Company has generally been regular in depositing Provident Fund dues ofits own employees. Based on information and explanations given to us the Company has laiddown systems and procedures regarding deposit of PF dues relating to contractors' workers.The ESI Act does not apply to the Company.

(b) Based on information and explanation given to us, no undisputed amounts payable inrespect of Investors Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax,Service Tax, Customs Duty, Excise Duty, Cess and any other statutory dues were outstandingas at 31^st March, 2010 for a period of more than six months from the date theybecame payable.

(c) According to the information and explanation given to us there are no dues ofIncome Tax, Sales Tax, Customs duty, Wealth Tax, Excise Duty and Cess which have not beendeposited on account of any dispute.

(x) The Company does not have accumulated losses as at the end of the financial yearand has not incurred cash losses during the financial year covered by our audit and theimmediately preceding financial year.

(xi) In our opinion and according to the information and explanations given to us, theCompany has not defaulted in repayment of dues to any financial institution, bank ordebenture holders.

(xii) The Company has not granted loans and advances on the basis of security by way ofpledge of shares, debentures and other securities. Hence the question of maintenance ofdocuments and records does not arise.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/mutual benefitfund/society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor'sReport) Order, 2003 are not applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities,debentures and other investments. Accordingly, the provisions of clause 4(xiv) of theCompanies (Auditor's Report) Order, 2003 are not applicable to the Company.

(xv) The Company has not given any guarantee for loans taken by others from banks orfinancial institutions based on the records produced to us.

(xvi) In our opinion, the term loans have been applied forthe purpose for which theywere raised.

(xvii) According to the information and explanations given to us and on an overallexamination of the Balance Sheet of the Company, we report that the no funds raised onshort-term basis have been used for long-term investment.

(xviii) According to the information and explanations given to us, during the year theCompany has not made preferential allotment of shares to parties and Companies covered inthe register maintained under section 301 of the Act.

(xix) According to the information and explanations given to us and the recordsexamined by us, securities have been created in respect of bonds issued.

(xx) The Company has not raised any money through public issue. Hence the provisions ofclause 4(xx) of the Companies (Auditor's Report) Order, 2003 are not applicable to theCompany.

(xxi) According to the information and explanations given to us, no fraud on or by theCompany has been noticed or reported during the course of our audit.

Place: Chennai

Date : 27.05.2010