Reliance Communications Ltd

Reliance Communications Limited

1 We have audited the attached Balance Sheet of RelianceCommunications Limited (‘the Company’) as at 31 March 2010 and also theProfit and Loss Account and the Cash flow statement for the year ended on that date,annexed thereto. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statementsbased on our audit.

2 We conducted our audit in accordance with the 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 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.

3 As required by the Companies (Auditor’s Report) Order, 2003 (‘theOrder’) issued by the Central Government of India in terms of sub-section (4A) ofSection 227 of the Companies Act, 1956 (‘the Act’), we enclose in the Annexure,a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in the paragraph 3 above, wereport that:

(a) we have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes 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;

(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 comply with the Accounting Standards referred to in sub-section(3C) of Section 211 of the Companies Act, 1956;

(e) on the basis of written representations received from the directors of the Companyas at 31st March 2010 and taken on record by the Board of Directors, we report that noneof the directors is disqualified as at 31 March 2010 from being appointed as a director ofthe Company under clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;and

(f) in our opinion, and to the best of our information and according to theexplanations given to us, the said accounts give the information required by the CompaniesAct, 1956, in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31March 2010;

(ii) in the case of the Profit and 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 of the Company for theyear ended on that date.

Annexure to Auditors’ Report - 31st March, 2010

With reference to the Annexure referred to in the Auditors’ Report to the Membersof Reliance Communications Limited (‘the Company’) on the financial statementsfor the year ended 31 March 2010, we report the following:

1. (a) The Company is in the process of updating its fixed asset register including, togive effect to the assets transferred on demerger of the Optic fibre undertaking and thepassive infrastructure to a subsidiary company.

(b) We are informed that the Company physically verifies its assets over a three yearperiod, except for base trans-receiver stations. We are informed that these assets areunder continuous operational surveillance at National Network Operating Centre and aretherefore not separately physically verified. In our opinion, this periodicity of physicalverification is reasonable having regard to the size of the Company and the nature of itsassets. In accordance with this policy, the Company has physically verified certain fixedassets during the year.

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

2. (a) The inventory has been physically verified by management during the currentyear. In our opinion, the frequency of such verification is reasonable.

(b) The procedures for the physical verification of inventories followed by 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. Discrepancies identified onphysical verification of inventories as compared to book records were not material.

3. The Company has neither granted nor taken any loans, secured or unsecured, to orfrom companies, firms or other parties covered in the register maintained under section301 of the Companies Act, 1956. Accordingly, paragraph 4(iii) of the Order is notapplicable.

4. In our opinion, and according to the information and explanations given to us, andhaving regard to the explanation that purchases of certain items of inventories and fixedassets are for the Company’s specialised requirements for which suitable alternativesources are not available to obtain comparable quotations, there is an adequate internalcontrol system commensurate with the size of the Company and nature of its business withregard to the purchase of inventories and fixed assets and with regard to the sale ofservices. In our opinion, activities of the Company do not involve sale of goods. In ouropinion, and according to the information and explanations given to us, there is nocontinuing failure to correct major weaknesses in the internal control system.

5. In our opinion, and according to the information and explanations given to us, thereare no contracts and arrangements the particulars of which need to be entered into theregister maintained under section 301 of the Companies Act, 1956.

6. The Company has not accepted any deposits from the public.

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

8. We have broadly reviewed the books of account maintained by the Company pursuant tothe rules prescribed by the Central Government for maintenance of cost records undersection 209(1)(d) of the Companies Act, 1956 in respect of telecommunication activitiesand are of the opinion that prima facie, the prescribed accounts and records have beenmade and maintained. However, we have not made a detailed examination of the records.

9. (a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company, amounts deducted/accrued in the books ofaccount in respect of undisputed statutory dues including Provident Fund, Wealth Tax,Income Tax, Service Tax, Customs Duty, Sales Tax, Entry Tax, Employees’ StateInsurance and other material statutory dues have been regularly deposited during the yearby the Company with the appropriate authorities. As explained to us, the Company did nothave any dues on account of Excise Duty and Investor Education and Protection Fund. Therewere no dues on account of cess under Section 441A of the Companies Act, 1956 since thedate from which the aforesaid section comes into force has not yet been notified by theCentral Government. According to the information and explanations given to us, noundisputed amounts payable in respect of Provident Fund, Wealth Tax, Income Tax, ServiceTax, Customs Duty, Sales Tax, Entry Tax, Employees’ State Insurance and othermaterial statutory dues were in arrears as at 31st March 2010 for a period of more thansix months from the date they became payable.

(b) According to the information and explanations given to us, there are no dues ofIncome Tax, Wealth Tax, Service Tax, Customs Duty, Employees’ State Insurance whichhave not been deposited on account of any dispute. The dues of Excise Duty, Sales Tax andEntry Tax as disclosed below have not been deposited by the Company on account ofdisputes.

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

11. In our opinion and according to the information and explanations given to us, theCompany has not defaulted in repayment of dues to its bankers or debenture holders or toany financial institutions.

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 the information and explanations given to us, theCompany is not a chit fund/ nidhi/ mutual benefit fund/ society.

14. According to the information and explanations given to us, the Company is notdealing or trading in shares, securities, debentures and other investments.

15. In our opinion and according to the information and explanations given to us, theterms and conditions on which the Company has given guarantees for loans taken by whollyowned subsidiaries and other companies with whom the Company has business dealings, frombanks or financial institutions are not prejudicial to the interest of the Company.

16. In our opinion and according to the information and explanations given to us, theterm loans taken by the Company have been applied for the purpose for which they wereraised.

17. According to the information and explanations given to us and on an overallexamination of the balance sheet of the Company, we are of the opinion that the fundsraised on short-term basis have not been used for long-term investment.

18. The Company has not made any preferential allotment of shares tocompanies/firms/parties covered in the register maintained under Section 301 of theCompanies Act, 1956.

19. According to the information and explanations given to us, the Company has createdsecurity in respect of debentures issued.

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

21. According to the information and explanations given to us, no significant fraud onor by the Company, that causes a material misstatement to the financial statements, hasbeen noticed or reported during the year.