Shaan Interwell (India) Ltd Auditors Report.

1997 SHAAN INTERWELL (INDIA) LIMITED AUDITORS REPORT TO THE MEMBERS OF SHAAN INTERWELL (INDIA) LIMITED We have audited the attached balance sheet of Shaan Interwell (India) Limited as at September 30, 1997 and the annexed Profit & Loss Account for the period ended on that date and report that: 1. As required by the Manufacturing and Other Companies (Auditors Report) Order, 1988, we annex hereto a statement on the matters specified in Paragraph 4 & 5 of the said order. 2. Further to our comments in the Annexure referred to in Paragraph 1 above: a. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; b. In our opinion, proper books of account as required by law have been kept by the Company as so far as appears from our examination of the books; c. The balance sheet and the profit and loss account dealt with by this report are in agreement with the books of account; d. Subject to - i. Note numbered 1.1 of Schedule 19 regarding non availability of bank statements and non provisioning of interest payable on credit facilities obtained by the company, aggregating to Rs. 70.00 lakhs approximately, for the half year ended September 30, 1997 and on amounts financed by the said bank on devolvement of letters of credit issued in favour of the company - amount unascertained - and its consequent effect on the loss for the period. ii. In the absence of confirmation of debts outstanding for a period exceeding six months as at September 30, 1997 and based on the available information, we are unable to comment on the recoverability of these amounts. iii. Note numbered 6.2 of Schedule 19 regarding non provisioning of interest bill discounting charges aggregating Rs. 258.63 lakhs and its consequent effect on the loss for the period. iv. Note numbered 11 of Schedule 19 regarding non confirmation of advances to suppliers on capital account and based on the available information, we are unable to comment on the recoverability of these amounts. v. Note numbered 12.1 b of Schedule 19 regarding change in the method of writing off of public issue expenses and its consequent impact on the loss of the company for the period. in our opinion, and to the best of our information and according to the explanations given to us, the said accounts together with the other notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view: in the case of the balance sheet, of the state of the affairs of the Company as at September 30, 1997 and in the case of the profit and loss account, of the loss for the period ended on that date. For R. DEVARAJAN 8 CO Chartered Accountants R. DEVARAJAN Partner Place : Mumbai Dated : May 14, 1998 ANNEXURE TO THE AUDITORS REPORT (Referred to in paragraph (1) of our report of even date) 1. We have been informed that the fixed asset register maintained by the Company is in the process of being updated for acquisitions during the year ending March 31, 1996 and period ending September 30, 1997. We have been informed that fixed assets have been physically verified by the management during the period. 2. None of the fixed assets have been revalued during the period. 3. We have been informed that physical verification has been conducted by the management at regular intervals in respect of stocks of finished goods, stores, spares and raw materials but no records of such physical verification was made available to us. 4. In view of the comments given in paragraph 3 above, we are unable to comment on the procedure of physical verification of stocks followed by the Management and also on the manner in which the discrepancies, if any, found on physical verification were dealt with. 5. We have examined the valuation of stock on a test check basis and which, in our opinion, is fair and proper in accordance with normally accepted accounting principles and is on the same basis as the previous year. 6. The Company has not taken any loans, secured or unsecured, from companies, firms and other parties listed in the register maintained under section 301 of the Companies Act, 1956 (1 of 1956) and/or from companies under the same management as defined under sub section (1 B) of section 370 of the Companies Act, 1956 (1 of 1956) on terms and conditions which are prima facie prejudicial to the interests of the Company. 7. The Company has not granted any loans, secured or unsecured, to companies, firms and other parties listed in the register maintained under section 301 of the Companies Act, 1956 (1 of 1956) and/or to companies under the same management as defined under sub section (1 B) of Section 370 of the Companies Act,1956 (1 of 1956) on terms and conditions which are prima facie prejudicial to the interests of the Company. 8. The parties to whom loans or advances in the nature of loans have been given by the Company are repaying the principal amounts, as stipulated, alongwith interest thereon wherever applicable. We have been informed that the Company has granted interest free loans to its employees who are generally regular in repayment of the principal. 9. In our opinion, internal control procedures for the purchase of stores, raw materials including components, plant and machinery and other assets and for the sale of goods need to be strengthened. 10. We have been informed that the Company has not entered into any transaction of purchase of goods and materials and for sale of goods, materials and services, made in pursuance of contracts or arrangements entered in register maintained under section 301 of the Companies Act, 1956 ( 1 of 1956) and aggregating during the period to Rs. 50000 or more in respect of each party at prices which are reasonable having regard to prevailing market prices for such goods, materials or services or prices at which transactions for similar goods, materials or services have been entered into with other Parties. 11. We have been informed that the Company has a regular procedure for determining unserviceable or damaged stores, raw materials and finished goods. We have been informed that adequate provision has been made in accounts for the los arising on items so determined. 12. As explained to us, the Company has complied with the provisions of section 58A of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules,1975 with regards to the deposits accepted from the public. 13. We have been informed that the Company has maintained reasonable records for sale and disposal of realisable scrap. 14. In our opinion and considering the size of the Company and the nature of its business, the system of internal audit needs to be strengthened. 15. We have been informed that the Central Government has not prescribed maintenance of cost records under section 209 (1)(d) of the Companies Act, 1956 in respect of the products manufactured by the Company. 16. According to the records of the Company, provident fund aggregating to Rs. 13.27 lakhs remained to be deposited with appropriate authorities as at the date of our report. We are informed that the provisions of the Employees State Insurance Act do not apply to the Company. 17. There are no undisputed amounts payable in respect of wealth tax, sales tax, customs duty and excise duty, outstanding as at the last day of the period for a period of more than six months from the date they became payable. As per the records of the Company, a sum of Rs.22.43 lakhs had remained to be deposited with appropriate authorities in respect of income tax deducted at source. 18. During the course of our examination of the books of accounts carried out in accordance with the generally accepted auditing practices, we have not come across any personal expenses, other than those payable under contractual obligations or in accordance with generally accepted business practices, which have been charged to Profit and Loss Account. 19. The Company is a sick industrial company within the meaning of clause (O) of sub section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986). For R. DEVARAJAN & CO Chartered Accountants R. DEVARAJAN Partner Place : Mumbai Dated : May 14, 1998