Tulsyan NEC Ltd

TO THE MEMBERS OF M/s. TULSYAN NEC LIMITED.

We have audited the attached Balance sheet of M/s. TULSYAN NEC LIMITED as on31st MARCH 2010, Profit & Loss Account for the year ended on that date and Cash FlowStatement 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.

1. We conduct 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 the management as well as evaluating the overallfinancial statement presentation. We believe our audit provides a reasonable basis for ouropinion.

2. As required by the Companies (Auditor's Report) Order 2003 [as amended by thecompanies (Auditor's Report) Amendment Order, 2004], issued by the Central Government ofIndia in term of Sub-Section (4A) of Section 227 of the Companies Act, 1956, we enclosedin the Annexure a statement on the matters specified in paragraphs 4 and 5 of the saidorder.

Further to our comments in the Annexure referred to in paragraph 2 above, we reportthat:

a) We have obtained all the information and explanation which to the best of ourknowledge and belief were necessary for the purpose of our audit;

b) In our opinion, proper books of Accounts, as required by law, have been kept by theCompany, so far as appears from our examination of those books.

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 Flow Statementdealt with by this report comply with the mandatory Accounting standards referred to insub-section (3c) of sec 211 of the Companies Act, 1956.

e) On the basis of written representations received from the Directors as on 31st March2010 and taken on record by the Board of Directors, none of the Directors are disqualifiedas on 31st March 2010, from being appointed as a Directors in terms of Clause (g) of subsection (1) of section 274 of the Companies Act, 1956.

f) As stated In Note No 6 of the Schedule 14 to the Notes on Accounts, we report thatthe company has paid Rs. 181. 09 lacs as Managerial Remuneration, which exceeds the limitscalculated under Schedule XIII of the Companies Act 1956 by Rs. 29. 52 lacs, as explainedto us by the management (hat. the Company has submitted application to the CentralGovernment seeking Its approval for the said remuneration paid over the limit.

g) Subject to our cornmerrts in Para (f) above, ln our opinion and to the best of ourinformation and according to the explanation given to us, the said accounts read togetherwith Significant Accounting Policies and notes appearing thereon as contained in schedule14 give the information required by the Companies Act. 1956 in the manner so required andgive a true and fair view in conformity with the accounting principles generally acceptedin India:

(i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31stMarch 2010.

(ii) In the case of the Profit and Loss Account, of the Profit of the Company for theyear ended on that date.

(iii) In the case of Cash Flow Statement, of the cash flows of the Company for the yearended on that date.

ANNEXURE TO AUDITORS' REPORT

Referred to in Paragraph 2 of our report of even date

1. In respect of its fixed assets:-

(a) The Company is maintaining proper records showing full particulars, includingquantitative details and situation of fixed assets.

(b) As explained to us, the fixed assets have been physically verified by themanagement and no material discrepancies were noticed on such verification.

(c) No Substantial part of fixed assets has been disposed off during the year.

2. In respect of its inventories:

(a) As explained to us, physical verification have been conducted by the management atreasonable intervals in respect of finished goods, stores and raw materials.

(b) In our opinion & according to the information and explanation given to us, theprocedures of physical verification of stock followed by the management is reasonable andadequate in relation to the size of the company and nature of its business.

(c) As explained to us, there were no material discrepancies noticed on physicalverification of inventory as compared to the book records.

3. In respect of loans, secured or unsecured, granted or taken by the Company to/fromcompanies, firms or other parties covered in the register maintained under Section 301 ofthe Companies Act, 1956:

(a) The company has granted Rs. 770.82 lacs from subsidiary companies during the year.

* Commercial Operations not yet started for the above companies.

(b) In our opinion and according to the information and explanations given to us, therate of interest, wherever applicable and other terms and conditions are not Prima facieprejudicial to the Interest of the Company.

(c) In respect of loans take by the Company, the interest payments are regular and theprincipal amount is repayable on demand. In respect of interest free loans granted by thecompany are repayable on demand.

(d) There is no overdue amount in respect of loans granted, as the same are repayableon demand so the question of overdue amounts does not arise.

(e) The company has taken unsecured loans from 29 parties aggregating to Rs. 1808.68lacs during the year (Excluding interest accrued & IFST), as stated in Note No 15. ofschedule 14 to the Notes on Accounts.

(f) In our opinion and according to the information and explanation given to us, therate of interest, wherever applicable and other terms and conditions are not prima facieprejudicial to the interest of the company.

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 for the purchase of inventory and fixed assets and also sale ofgoods and services. During the course of our audit, we have not observed any majorweaknesses in internal control

5. In respect of transactions covered under Section 301 of the Companies Act,1956:

(a) In our opinion and according to the information and explanations given to us,Particulars of contracts or arrangements that needed to be entered in the registermaintained under section 301 of the Companies Act, 1956 have been so entered.

(b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of contracts or arrangements entered in the registermaintained under Section 301 of the Companies Act, 1956 aggregating during the year to Rs.5,00,000/- (Rupees Five lacs Only) or more in respect of these parties are prima facie notprejudicial to the interest of the Company and are as per the prevailing market rates.

6. The Company has not accepted any deposit from the public. However loans taken fromDirectors and their relatives and others the Companies regularly files statement in lieuof prospects after the AGM every year.

7. In our opinion. the internal audit functions carried out during the year by a firmof Chartered Accountants appointed by the Management have been commensurate with the sizeof the Company and the nature of the business

8. We have reviewed the books of accounts related to Materials. Labour and other itemsof cost maintained by the company pursuant to the rules made by the Central Government formaintenance of cost records under section 209 (1) (d) of the Companies Act. 1956 and weare of the opinion that prima facie the prescribed accounts and records have been made andmaintained.

9. In respect of statutory dues:

(a) According to the records of the company, undisputed statutory dues includingProvident Fund, Employees State Insurance. Income Tax, Sales Tax, Wealth Tax. Custom Duty.Service Tax, Excise Duty. Cess and other statutory dues have been generally regularlydeposited with the Appropriate Authorities According to the information and explanationsgiven to us. no undisputed amounts payable in respect of income Tax, Wealth Tax, Sales TaxService Tax, Customs Duty and any other statutory dues were outstanding as at 31st March2010 for a period of more than six months from the date of becoming payable.

(b) According to the information and explanation given to us details of the disputeddues which have not been deposited as on March 31, 2010 are referred to in theAnnexure......A.

10. The Company has no accumulated losses as at March 31st 2010. and t has not incurredany cash losses n the financial year ended on the date or in the immediately precedingfinancial year.

11. Based on our audit procedures and on information and explanation given by themanagement we are of the opinon that the Company has not defaulted in repayment of dues toany financial institution or bank as to the Balance sheet date.

12. The Company has not granted any loans and Advances on the basis of security by wayof pledge of shares, debentures and other securities,during the year under audit.

13 In our opinion, the company is not a Chit Fund or Nidhi / Mutual benefit fund /society. Therefore, the provision of clause 4 (xiii) of the order are not applicable tothe company.

14. In our opinion, the Company is not dealer or trader in shares, securities,debentures and other investments So. Clause 4 (xiv) of the order is not applicable to thecompany.

15. According to the information and explanation given to us, the Company has givencorporate guarantee for loans taken by M/s. Chitrakoot Steel & Power Pvt. Ltd. frombanks amounting to Rs. 20. 00 crore as per port number 1. 8 of notes to accounts.

16. According to the information and explanation given to us. on an overall basis, theterm loan taken from bank have been applied for the purposes for which they were obtainedand the same have been mentioned in the Schedule 3 of the Balance Sheet.

17. According to the information and explanation given to us. on an overall examinationof the Balance Sheet of the Company, we report that no funds raised on short-term basiswhich have been used for long term investment.

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, 1956Accordingly clause 4 (xviii) of the order is not applicable to the Company.

19. During the period covered by our audit report the Company has not issued anydebentures, therefore the cause 4 (xix) of the order is not applicable to the Company.

20. The Company has not raised any money by way of public issues during the year,therefore clause 4 (xx) of the order is not applicable to the Company.

21. Based upon the audt procedures performed and information and explanation given bythe management we report that no fraud on or by the company has been noticed or reportedduring the course of our audit

ANNEXURE "A" TO AUDITORS REPORT

Referred to in paragraph 9 (b) of Annexure a statement on the matters specified in theCompanies (Auditor's Report) Order, 2004 of M/s. TULSYAN NEC LIMITED for the year endedMarch 31, 2010.

TAX LIABILITIES DISPUTED IN APPEAL