Raj Rayon Industries Ltd Auditors Report.

To,

The Members of,

Raj Rayon Industries Limited

Report on the Financial Statements

We have audited the accompanying financial statements of Raj Rayon Industries Limited ("the Company"), which comprise the Balance Sheet as at 31st March 2018, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended and a summary of the significant accounting policies and other explanatory information.

Managements Responsibility for the Financial Statements

The Companys Board of Directors are 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 and 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 of 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 misstatements, whether due to fraud or error.

Auditors 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 the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.

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 auditors judgment, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal financial control relevant to the Companys preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Companys 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

The attached Balance Sheet as at 31st March 2018 is drawn on the basis of Principle of ‘Going Concern. We opine as follows in this connection:

a) Due to defaults in payments of Bank loans, the companys accounts have been classified as Non- Performing Assets (NPA) by the bankers under Consortium. The banks (except South Indian Bank which has charged Interest for April 2016) have not charged interest on the companys borrowings / loans or reversed the interest charged. Therefore, no provision has been made for such Interest in the books of accounts of the company and to that extent, finance cost and total Comprehensive lncome/(Loss) is estimated to be understated by Rs.10,645.94 Lakhs for the year ended 31st March 2018 and the Surplus in statement of profit and loss and Total Other Equity under "Note No. 16:0ther Equity" is estimated to be understated by 20,049.51 Lakhs.

b) The Companys account stands exited from CDR Mechanism. However, in view of classification of Companys account as Non-Performing Asset (NPA), contingency related to compensation payable in lieu of bank sacrifice cannot be determined currently.

c) The Net worth of the Company is fully eroded. However the management has prepared the financial statements on going concern basis. The appropriateness of the ‘Going Concern concept based on which the accounts have been prepared is interalia dependent on the Companys ability to infuse requisite funds for meeting its obligations to lenders / rescheduling of debt and resuming normal operations.

We further report that, except for the effect, if any, of the matters stated in paragraph (b) and

(c) above, whose effect are not ascertainable, had the observations made under ‘Basis for Qualified opinion considered, the loss after tax for the year ended March 31, 2018 would have been higher by Rs. 10645.94 Lakhs and the Surplus in statement of profit and loss and Total Other Equity under "Note No. 16: Other Equity" would have been lower by 20,049,51 Lakhs.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the matters expressed in Basis for Qualified Opinion and Emphasis of matters paragraph, 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 31st March, 2018; and its Loss and cash flow for the year ended on that date.

Emphasis of Matter

We draw attention to the following matter in the notes to the Financial Statements for which our opinion is not qualified:

a) Term Loan, Working Capital Term Loan (WCTL), Funded Interest Term Loan and Working Capital loans availed by the Company from various banks under consortium advance including the loans of South Indian Bank taken over by Asset Reconstruction Company remained unpaid and overdue since 2015 - 16.

b) In our opinion the securities provided to Banks are not adequate to cover the amounts outstanding as on the date of Balance Sheet.

c) The Company has been served with Summon/Notice from the Debt Recovery Tribunal at the instance of State Bank of India and the Phoenix ARC Pvt Ltd., the lenders, calling upon, interalia, to pass an order and issue Recovery Certificate for recovery of Rs.1008,08.99 Lakhs and Rs. 6548.21 Lakhs respectively along with interest @6.75% above base rate (presently 15.40% p.a. for State Bank of India & @ 13.75% per annum for Phoenix ARC Pvt Ltd. compounded on monthly basis and penal interest @2% on the above amount from the date of filing the application till the date of realization.

As the matter is sub-judiced, our Report is not qualified in respect of the above matter.

Report on Other Legal and Regulatory Requirements

As required by the Companies (Auditors Report) Order, 2016 ("the Order"), as amended, issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013 (hereinafter referred to as the "Order"), and on the basis of such checks of the books of accounts and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the "Annexure A" a statement on the matters specified in paragraphs 3 and 4 of the Order.

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) 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 Cash Flow Statement dealt with by this Report are in agreement with the books of accounts.

(d) In our opinion, except for matters expressed in Paragraph "Basis for Qualified 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) On the basis of the written representations received from the directors as on 31st March, 2018 taken on record by the Board of Directors, none of the directors are disqualified as on 31st March, 2018 from being appointed as a director in terms of section 164 (2) of the Act.

(f) With reference to the adequacy of the Internal Financial Controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our Separate Report in "Annexure B".

(g) With respect to the other matters to be included in the Auditors 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 explanation given to us :

i. The Company has disclosed the impact of pending litigation on its financial position in its financial statements - Refer "Note 32" 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 is no amount outstanding which needed to be transfer to Investor education and protection fund.

iv. In the absence of requisite information/details regarding Specified Bank Notes and other denomination notes, appropriate disclosure as required vide MCA Notification No. GSR 308(E), dated 31 March 2018, could not be made.

For Agarwal Desai & Shah

Chartered Accountants

Firm Registration No. 12485QW.

(CA. Bharat Kumar)

Partner

M No.175787

Place: Mumbai

Date: 30th May 2018

ANNEXURE "A" REFERRED TO THE INDEPENDENT AUDITORS REPORT

(Referred to in paragraph under the heading of Report on Other Legal and Regulatory Requirements section of our report of even date to the financial statements of the Company for the year ended 31st March 2018)

(i)

a. In our opinion, the Company has maintained proper records showing full particulars, including quantitative details and situation of its fixed assets.

b. As per the information and explanation given to us, the fixed assets have been physically verified by the management according to a programme of verification which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies with respect to book records were reported on such verification by the management.

c. The title deeds of immovable properties as disclosed in Note - 03 on Property Plant ft Equipment to the financial statements, are held in the name of the Company.

(ii)

a. As explained to us, Physical verification of inventory excluding stock with third party has been conducted by the management at reasonable intervals. In respect of Inventory lying with third party, these have substantially been confirmed by them. In our opinion, the frequency of verification is reasonable.

b. The Discrepancies noticed on verification of Inventory as compared to books records were not material and these have been properly dealt with in the books of accounts.

(iii) The Company has not granted any Unsecured Loan to Companies as covered in the register maintained under section 189 of the Companies Act, 2013.

(iv) In our opinion and according to the information and explanation given to us, the company has complied with provisions of Section 185 and 186 of the Companies Act, 2013 in respect of Loans, Investments, guarantees, and security.

(v) In our opinion and according to the information and explanations given to us, the Company has not accepted any deposit within the meaning of section 73 to 76 of the Companies Act, 2013, and the rules framed there under.

(vi) Pursuant to the rules made by the Central Government of India, the Company is required to maintain cost records as specified under section 148 (1) of the Act in respect of its Products. We have broadly reviewed the same, and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

(vii)

a) According to the records of the Company and the information and explanations given to us, the company is regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Employees State Insurance, Income tax, sales tax, Service Tax, Custom Duty, Excise duty, Value Added Tax, Cess and other statutory dues to the extent applicable to it. There are no undisputed statutory dues as referred to above as at 31st March 2017 outstanding for a period of more than six months from the date they become payable.

d) According to the information and explanations given to us and the records of the Company examined by us, there are no dues of Income Tax or sales tax or service tax or duty of customs or duty of excise or value added tax or cess except the following:

Name of the Statute Nature of the Dues

Amount in (Rs.) (Excluding penalties and interest, if any except otherwise stated)

Period to which the amount relate Forum where dispute is pending
Central Excise Duty Excise Duty 23.89 1995-1996
32.09 1996-1997 Additional
38.30 1997-1998 Directorate of Anti
25.82 1998-1999 Evasion
7.40 1999-2000
127.50
0.09# 1999-2000 The Company is in the process of refund
2.95 2003-2004 Appellate Tribunal of Central Excise
3.35 2003-2004 & 2004- 2005 The Company has filed reply to show Cause Notice received from Superintendent of Central Excise
2.84# 2003-2004 The Company has filed the Appeal in the Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad
174.57 2012-2013 The Company has filed an Appeal before the Custom, Excise & Service tax Appellate Tribunal. Ahmedabad
283.52 (**) 2005 - 2006 & 2006 - 2007 The Company is in the process of filing the Appeal with the Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad
Textile Committee Act Cess 0.35 1997-1998 Textile Cess Appellate Tribunal
0.88 1998-1999
2.13 1999-2000
3.10 2000-2001
1.37 2001-2002
7.82
Gujarat Tax on Entry of Specified Goods into Local Area Act, 2001 (Including Penalties & Interest) Entry tax 308.83 (Net of 250.00 lacs being amount Recovered by the Department) 01.04.2012 to 31.01.2014 The Company has filed an appeal before the Deputy Commissioner of Commercial Tax Surat (Gujarat).

# Payment made under protest

* Assessment year

** Represents Penalty demand

(viii) Based on our audit procedures and according to the information and explanation given by the management, the company has defaulted in repayment of dues to bank / financial institution as detailed in Annexure "C" to this report. The Company has not issued any debentures.

(ix) Based upon the audit procedures performed and the information and explanations given by the management, the company has not raised moneys by way of initial public offer or further public offer including debt instruments and term Loans. Accordingly, the provisions of clause 3 (ix) of the Order are not applicable to the Company and hence not commented upon.

(x) Based on the audit procedures performed and information and explanations given to us by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

(xi) Based upon the audit procedures performed and the information and explanations given by the management, the managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act;

(xii) As the Company is not a Nidhi Company and the Nidhi Rules, 2014 are not applicable to it, the provisions of clause 4 (xii) of the Order are not applicable to the Company.

(xiii) In our opinion, all transactions with the related parties are in compliance with section 177 and 188 of Companies Act, 2013 and the details have been disclosed in the Financial Statements as required by the applicable accounting standards.

(xiv) Based upon the audit procedures performed and the information and explanations given by the management, the company has not made any preferential allotment of Shares during the year under review. The Company has not made any private placement of shares or fully or partly convertible debentures.

(xv) Based upon the audit procedures performed and the information and explanations given by the management, the company has not entered into any non-cash transactions with directors or persons connected with him. Accordingly, the provisions of clause 3 (xv) of the Order are not applicable to the Company and hence not commented upon.

(xvi) In our opinion, the company is not required to be registered under section 45 IA of the Reserve Bank of India Act, 1934 and accordingly, the provisions of clause 3 (xvi) of the Order are not applicable to the Company and hence not commented upon.

For Agarwal Desai & Shah

Chartered Accountants

Firm Registration No. 124850W

(CA. Bharat Kumar)

Partner

M No.175787

Place: Mumbai

Date: 30th May 2018

"Annexure B" to the Independent Auditors Report of even date on the Standalone Financial Statements of Raj Rayon Industries limited

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act").

We have audited the internal financial controls over financial reporting of Raj Rayon Industries Limited ("the Company") as of March 31, 2018 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Managements Responsibility for Internal Financial Controls

The Companys management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India". These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors Responsibility

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the "Guidance Note") and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting were established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Companys internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A companys Internal Financial Control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys Internal Financial Control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of Internal Financial Controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and may not be detected. Also, projections of any evaluation of the Internal Financial Controls over financial reporting to future periods are subject to the risk that the Internal Financial Control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, the Company has, in all material respects, an adequate internal financial control system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2018, based on "the Internal Financial control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by The Institute of Chartered Accountants of India".

For Agarwal Desai & Shah

Chartered Accountants

Firm Registration No. 124850W

(CA. Bharat Kumar)

Partner

M No. 175787

Place: Mumbai

Date: 30th May 2018

Annexure "C" to Independent Auditors Report

[Referred to in paragraph viii of Annexure A to Auditors reports of even date to the members of M/s. Raj Rayon Industries Ltd.]

Default in Repayment of dues to Banks towards Term Loans

(Rs. in lakhs):

Particulars Period of Default

As at 31.03.2018

Principal Interest
State Bank of India Since 2015 - 16 26,627.34 8,750.84
State Bank of Hyderabad Since 2015 - 16 12,801.50 5,349.92
State Bank of Mysore Since 2015 - 16 5,040.89 1,841.71
State Bank of Travancore Since 2015 - 16 4,862.46 1,691.09
State Bank of Bikaner & Jaipur Since 2015 - 16 2,698.80 832.06
State Bank of Patiala Since 2015 - 16 3,196.15 1,214.98
Phoenix ARC Pvt. Ltd. (*) Since 2015 - 16 4,076.05 1,192.30
Total 59,303.19 20,872.90

The facilities being classified as Non-Performing Assets (NPAs), hence entire outstanding amount is considered as default by the Company.

(*) Phoenix ARC Pvt. Ltd. (an Assets Reconstruction Company) has acquired the loans from South Indian Bank.

Default in Repayment of dues to Banks towards Working Capital Facilities

(Rs. in lakhs)

Particulars Period of Default

As at 31.03.2018

Principal Interest
State Bank of India Since 2015 - 16 4655.03 2,865.05
State Bank of Hyderabad Since 2015 - 16 1689.99 433.39
State Bank of Travancore Since 2015 - 16 820.13 217.46
State Bank of Mysore Since 2015 - 16 491.61 155.47
State Bank of Bikaner & Jaipur Since 2015 - 16 1415.78 366.51
Phoenix ARC Pvt. Ltd. (*) Since 2015 - 16 1010.73 244.76
Total 10083.27 4,282.64

The facilities being classified as Non-Performing Assets (NPAs), the lenders have reduced the Drawing Power to "Nil", hence entire outstanding amount is considered as default by the Company.

(*) Phoenix ARC Pvt. Ltd. (an Assets Reconstruction Company) has acquired the loans from South Indian Bank.