To the Members of S.A.L. STEEL LIMITED AHMEDABAD

Report on the Financial Statements

We have audited the accompanying financial statements of S.A.L STEEL Limited ('the Company'), which comprise the Balance sheet as at March 31, 2015, the Statement of profit and loss , the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.

Basis for Qualified Opinion

1. Management is of the view that they do not anticipate execution of its ongoing capital projects. However, due provision / write off / impairment which must have been made in the books of accounts has not been made. Out of the total book value of Capital work in progress of Rs. 103,89,20,943/- during the year, the management has charged back only expense of pre operative expense, trial run expense and borrowing cost element for Rs. 47,48,71,471/- to the statement of profit and loss during the current year which was earlier capitalized. For the remaining balance, the company has not carried out any Techno-economic assessment during the year ended 31 March 2015 for the valuations of its ongoing Capital Projects and hence identification of impairment loss and provision thereof, if any, has not been made. The same is not in accordance with the notified Accounting Standard 28 on Impairment of asset which states that impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount . The consequential impact of adjustment, if any, on the financial statements is currently not ascertainable. And hence we are unable to comment on its consequential impact, if any, on the financial statements.

Apart from this, the Company has not made provision towards recovery of capital advances for the said project for the amount of '25,26,09,551/- which are currently shown under Long term loans and advances. The consequential impact of adjustment, if any, on the actual realization of said advances on the financial statements is currently not ascertainable. therefore we are unable to comment on its consequential financial impact, if any, on the financial statements.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph above , the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India , of the state of affairs of the Company as at March 31, 2015 , and its loss for the year ended March 31, 2015 and its cash flows for the year ended on that date.

Emphasis of Matters

We draw attention to the following matters in the Notes to the Financial Statements:

1) Note No. 26 to the financial statements which describes that the Non disclosure of Reportable Segments as required under Accounting Standard - 17 'Segment Reporting', there is no impact on the Statement of Profit and Loss due to non disclosure.

2) Note No. 29 to the financial statements which describes that the company has reversed the Deferred Tax Asset for the amount of Rs. 16,44,16,320/- and charged it to Statement of Profit and Loss during the Year ended March 31, 2015 due to Management anticipating no sufficient future taxable Income to recover such Deferred Tax Asset. The same is in accordance with the notified Accounting Standard 22 on Accounting for Taxes on Income which states that Deferred Tax asset should be recognized to the extent there is virtually certainty that there will be sufficient future taxable income against which the said deferred tax asset can be realized. Due to reversal of the said deferred tax asset for Rs. 16,44,16,320/-, loss of the current year has been higher by Rs. 16,44,16,320/- and Negative balance of Reserves and Surplus has been lower by Rs. 16,44,16,320/- .

3) During the year, the Company has accumulated losses and its net worth has been fully eroded. The Financial Statements indicates that the Company has incurred a net loss/net cash loss during the current and previous year(s) and, the Company's current liabilities exceeded its current assets as at the current and previous year balance sheet date. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. However, the financial statements of the Company have been prepared on a going concern basis for the reasons stated in the said Note 27 to the financial statements.

4) Note 30 to the Financial Statements Regarding Dues to banks .

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order, 2015 ("the Order") issued by the Central Government of India in terms of subsection (11) of section 143 of the Act, we give in the Annexure a statement on the matters specified in the paragraph 3 and 4 of the Order, to the extent applicable.

2. As required by Section 143 (3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

(b) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above , in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

(c) The Balance sheet, the Statement of Profit and loss and the Cash flow statement dealt with by this Report are in agreement with the books of account;

(d) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above , in our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule -7 of the Companies (Accounts) Rules, 2014;

(e) The going concern matter as described in sub-paragraph (3) under the Emphasis of Matters paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

(f) On the basis of the written representations received from the directors as on March 31, 2015 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2015 from being appointed as a director in terms of Section 164 (2) of the Act; and

(g) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

(i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 18A to the financial statements;

(ii) The Company did not have any long term contracts including derivative contracts for which there were any material foreseeable losses;

(iii) There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

For Talati & Talati
Chartered Accountants
(Firm Reg. No: 110758W)
Umesh Talati
Place : Ahmedabad Partner
Date : May 05, 2015 Mem No. : 034834

Annexure to Independent Auditors' Report

Referred to in paragraph 1 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date.)

i) In respect of its Fixed Assets:

a) The company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets on the basis of available information.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased program of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company and nature of its assets. As informed to us, no material discrepancies were noticed on such physical verification.

ii) In respect of its inventories:

a) As explained to us, inventories (excluding Goods in Transit and Goods lying at Port) were physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of the verification is reasonable.

b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and nature of its business.

c) In our opinion and according to the information and explanations given to us, the company has maintained proper records of inventories. As explained to us, there was no material discrepancies noticed on Physical Verification of Inventories as compared with the book records.

iii) In respect of Loans, Secured or Unsecured granted by the company to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act, 2013: According to the information and explanations given to us and on the basis of the records produced before us, the company has not granted any Loan, Secured or Unsecured to the companies or firms or other parties covered in the register maintained under section 189 of the Companies Act 2013 and hence sub-clause (a) & (b) of paragraph 3 of the Companies Auditor's Report Order 2015 are not applicable to the Company .

iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchases of inventory, fixed assets and for the sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls system.

v) In our opinion and according to the information and explanations given to us, the Company has not accepted any deposit and hence the provisions of Section 73 to 76 or any other relevant provisions of the Companies Act and the Companies (Acceptance of Deposits) Rules, 2014 with regard to the deposits accepted are not applicable to the Company. Therefore, the provisions of Clause (v) of paragraph 3 of the Companies Auditor's Report Order 2015 are not applicable to the Company. According to the information and explanations given to us, no order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

vi) We have broadly reviewed the cost records maintained by the Company as specified Central Government under sub Section (1) of Section 148 of the Companies Act, 2013 and are of the opinion that the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

vii) In respect of the Statutory dues:

a) According to the records of the company, undisputed Statutory dues including provident fund, employees state insurance, income- tax, sales-tax, wealth-tax, service tax, duty of customs, duty of excise ,value added tax, cess and any other statutory dues have not been generally regularly deposited during the year with the appropriate authorities.

On the basis of records produced before us for our verification and according to the information & explanation given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2015 for a period of more than six months from the date of becoming payable.

b) On the basis of records produced before us for our verification and according to the information and explanations given to us, the details of disputed dues of Rs. 23,15,03,180/- have not been deposited as on 31st March, 2015 on account of matters pending before the appropriate authorities. The details of which are as under :

Sr. No. Name of the Statute Nature of the Dues Period to which the amount relates Forum where the dispute is pending Amount under dispute not yet deposited (in ')
1 Central Excise Act, 1944 Central Excise Duty 2006-07 Appellate Tribunal Ahmedabad 5,55,781
2 Central Excise Act, 1944 Central Excise Duty 2008-09 Appellate Tribunal Ahmedabad 10,41,057
3 Custom Act, 1962 Custom Duty 2011-12 Appellate Tribunal Ahmedabad 2,41,79,202
4 Central Excise Act, 1944 Central Excise Duty 2012-13 Appellate Tribunal Ahmedabad 4,49,84,993
5 Gujarat Value Added Tax Act 2003 Value Added Tax 2006-07 Jt. Value Added Tax Commissioner (Appeal) 3,65,63,595
6 Central Excise Act, 1944 Central Excise Duty 2008-09 to 2010-11 Supreme Court 5,90,14,068
7 Central Service Tax Act, 1994 Service Tax Duty 2009-10 Service Tax Commissioner 25,36,074
8 Central Excise Act, 1944 Central Excise Duty 2005-06 to Sep 2014 Central Excise Commissioner 6,26,28,410

c) According to the information and explanations given to us there is no amount which is required to be transferred to the investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956).

viii) On the basis of information and explanations given to us and on the basis of records produced before us, the company's accumulated losses at the end of the financial year are more than fifty percent of its net worth. The company has incurred cash losses amounting to Rs 2,82,13,058/- during the current year .The company has incurred cash losses amounting to Rs 28,00,81,448/- in the immediately preceding financial year.

ix) On the basis of the information and explanation given to us and on the basis of records produced before us, the company has defaulted in repayment of Principal portion of the Term Loan to the extent of Rs 59,62,00,000/- as at the year end. The company has also defaulted in payment of interest on term loan to the extent of Rs 39,41,29,005/- as at the year end. The period of default on repayment of principal and payment of interest is ranging for a period from 1 day to 912 days and 1 day to 820 days respectively. The company has also defaulted in payment of interest on working capital facilities to the extent of Rs 21,25,93,330/- as at the year end. The period of default in payment of interest is ranging for a period from 1 day to 881 days. Moreover, the company has defaulted in honouring L/C payments to the extent of Rs. 12,50,04,346/- as at the balance sheet date. The period of default in honouring L/C payments is ranging for a period from 609 days to 783 days .

x) The company has given corporate guarantee for Rs 80,00,00,000/- in the earlier years. As on March 31, 2015, the balance of said corporate guarantee is Rs. 6,03,78,259/- . In our opinion, the terms and conditions on which the company has given guarantee is not prejudicial to the interest of the company. The guarantee amount keeps on reducing to the extent SAL Steel Limited repays Inter corporate deposit to Shah Alloys Limited. The Guarantee ceases to exist upon repayment of entire amount of Inter corporate deposit to Shah Alloys Limited.

xi) According to the information & explanations given to us, the Company has not raised any term loan during the year under audit.

xii) In our opinion and according to the information and explanations given to us and based on management representation, no material fraud on or by the company has been noticed or reported during the financial year covered by the audit.

For Talati & Talati
Chartered Accountants
(Firm Reg. No: 110758W)
Umesh Talati
Place : Ahmedabad Partner
Date : May 05, 2015 Mem No. : 034834