Torrent Power Ltd

To the Shareholders of

TORRENT POWER LIMITED

1. We have audited the attached Balance Sheet of TORRENT POWER LIMITED ("theCompany") as at 31st March, 2011, the Profit and Loss Account and the Cash FlowStatement of the Company for the year ended on that date, both annexed thereto. Thesefinancial statements are the responsibility of the Company’s Management. Ourresponsibility is to 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. Those 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 thedisclosures in the financial statements. An audit also includes assessing the accountingprinciples used and the significant estimates made by the Management, as well asevaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 (CARO) issued bythe Central Government in terms of Section 227(4A) of the Companies Act, 1956, we enclosein the Annexure a statement on the matters specified in paragraphs 4 and 5 of the saidOrder.

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

(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 it appears from our examination of those books;

(c) The Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealtwith by this report are in agreement with the books of account;

(d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash FlowStatement dealt with by this report are in compliance with the Accounting Standardsreferred to in Section 211(3C) of the Companies Act, 1956;

(e) In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts give the information required by the Companies Act, 1956 inthe manner so required and give a true and fair view in conformity with the accountingprinciples generally accepted in India:

(i) in the case of the Balance Sheet, of the state of the affairs of the Company as at31st March 2011;

(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.

5. On the basis of the written representations received from the Directors as on 31stMarch, 2011 taken on record by the Board of Directors, none of the Directors isdisqualified as on 31st March, 2011 from being appointed as a director in terms of Section274(1)(g) of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS’ REPORT

(Referred to in paragraph 3 of our report of even date)

1. Having regard to the nature of the Company’s business / activities / results,clauses (x), (xiii) and (xiv) of CARO are not applicable.

2. In respect of the Company’s fixed assets:

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

(b) The fixed assets were physically verified over a period of three years by theManagement in accordance with a regular programme of verification which, in our opinion,provides for physical verification of all the fixed assets at reasonable intervals.According to the information and explanations given to us, discrepancies noticed on suchverification have been properly dealt with in the books of account. As regards undergrounddistribution systems, we have been informed that the same are not physically verifiable.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute asubstantial part of the fixed assets of the Company and such disposal has, in our opinion,not affected the going concern status of the Company.

3. In respect of its inventory:

(a) As explained to us, the inventories were physically verified during the year by theManagement at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, theprocedures of physical verification of inventories followed by the Management werereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

(c) In our opinion and according to the information and explanations given to us, theCompany has maintained proper records of its inventories and no material discrepancieswere noticed on physical verification.

4. The Company has neither granted nor taken any loans, secured or unsecured, to / fromcompanies, firms or other parties listed in the Register maintained under Section 301 ofthe Companies Act,1956.

5. In our opinion and according to the information and explanations given to us, havingregard to the explanations that some of the items purchased are of special nature andsuitable alternative sources are not readily available for obtaining comparablequotations, there is an adequate internal control system commensurate with the size of theCompany and the nature of its business with regard to purchases of inventory and fixedassets and the sale of goods and services. During the course of our audit, we have notobserved any major weaknesses in such internal control system.

6. In respect of contracts or arrangements entered in the Register maintained inpursuance of Section 301 of the Companies Act, 1956, to the best of our knowledge andbelief and according to the information and explanations given to us:

(a) The particulars of contracts or arrangements referred to in Section 301 that neededto be entered in the Register maintained under the said Section have been so entered.

(b) Transactions during the year exceeding the value of Rupees Five Lacs in respect ofany party have been made at prices which are reasonable having regard to the prevailingmarket prices at the relevant time. No such transactions have been recorded in the saidregister in respect of sale of electricity as the Company is of the view that suchtransactions, being for cash at prevailing market prices, do not require to be entered inthe register maintained under Section 301 of the Companies Act, 1956.

7. According to the information and explanations given to us, the Company has notaccepted any deposit from the public during the year. In respect of unclaimed deposits,the Company has complied with the provisions of Sections 58A, 58AA or any other relevantprovisions of the Companies Act, 1956.

8. In our opinion, the internal audit functions carried out during the year by anentity of Chartered Accountants appointed by the management have been commensurate withthe size of the Company and the nature of its business.

9. We have broadly reviewed the books of account maintained by the Company pursuant tothe rules made by the Central Government for maintenance of cost records under section 209(1) (d) of the Companies Act, 1956 in respect of generation and distribution ofelectricity and are of the opinion that prima facie the prescribed accounts and recordshave been maintained. We have, however, not made a detailed examination of the recordswith a view to determining whether they are accurate or complete.

10. According to the information and explanations given to us in respect of statutorydues:

(a) The Company has generally been regular in depositing undisputed dues, includingProvident Fund, Investor Education and Protection Fund, Employees’ State Insurance,Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and othermaterial statutory dues applicable to it with the appropriate authorities.

(b) There were no undisputed amounts payable in respect of Income-Tax, Wealth Tax,Custom Duty and Excise Duty, Cess and other material dues in arrears as at 31st March,2011 for a period of more than six months from the date they became payable.

(c) Details of dues of Income-tax, Sales Tax / VAT, Wealth Tax, Service Tax, CustomDuty, Excise Duty and Cess which have not been deposited as on 31st March, 2011 on accountof disputes are given below:

11. In our opinion and according to the information and explanations given to us, theCompany has not defaulted in repayment of dues to banks and financial institutions. TheCompany has not issued any debentures.

12. In our opinion, the Company has not granted loans and advances on the basis ofsecurity by way of pledge of shares, debentures and other securities.

13. 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 and financialinstitutions.

14. In our opinion and according to the information and explanations given to us, theterm loans have been applied for the purposes for which they were obtained, other thantemporary deployment pending application.

15. In our opinion and according to the information and explanations given to us and onan overall examination of the Balance Sheet, we report that funds raised on short-termbasis have not been used during the year for long term investment.

16. The Company has not made preferential allotment of shares to parties and companiescovered in the register maintained under section 301 of the Companies Act, 1956.

17. The Company has not issued any debentures during the year.

18. The Company has not raised money by public issue during the year.

19. To the best of our knowledge and according to the information and explanationsgiven to us, no fraud by the Company and no material fraud on the Company has been noticedor reported during the year except in case of theft of electricity reported by thevigilance department of the Company, the amount for which is not ascertainable.