Surya Pharmaceutical Ltd Auditor Reports

To,

The Members of,

M/s. Surya Pharmaceutical Limited.

We have audited the accompanying financial statements of M/s. Surya Pharmaceutical Limited, which comprise the Balance Sheet as at March 31, 2013, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Managementfs Responsibility for the Financial Statement:

Management is responsible for 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 Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control 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.

Auditors Responsibility:

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. 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 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 control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, 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.

Opinion:

1. The provision for employee benefit has been provided on accrual basis and no actuarial valuation certificate has been obtained as required by AS15.

2. Managerial Remuneration paid to Directors in FY 2011-12 has exceeded the limit as prescribed in the Companies Act, 1956. The Company sought approval from Central Government for condonation of excess remuneration. The same is still pending.

3. Attention is invited to restructuring of facilities carried out by lenders to the Company in January, 2013, followed by recall of loan notice issued by some of the lenders. At this stage, it is not possible to evaluate the effect of the outcome of aforesaid notice of recall.

4. The Board of Directors of the Company since June 15, 2013 comprises of 2 persons, which is less than the minimum number of Directors statutorily required in case of a public Company, and is a contravention of section 252 of the Act. The Whole time Secretary mandatorily required to hold office under section 383A of the Act is not in office since from May 28, 2013, which is a contravention of the said section. As on date, there is no person in employment of the Company except its Managing Director and Executive Director.

In our opinion and to the best of our information and according to the explanations given to us, the 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 subject to our comments in paragraph 1, 2, 3 and 4 above:-

Further to our comments in the annexure referred to in paragraph 4 below, we report that:

a) In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2013;

b) In the case of the Profit and Loss Account, of the loss for the year ended on that date; and

c) In the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

5. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of subsection (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

6. As required by section 227 (3) of the Act, we report that:-

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 so far as appears from our examination of those books

c) The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account.

d) In our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956;

e) On the basis of written representations received from the directors as on March 31, 2013, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

f) Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Companies Act, 1956 nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

FOR AAD & ASSOCIATES

CHARTERED ACCOUNTANTS

Sd/-

SHAMSHER SINGH

(PROPRIETOR)

M.NO. 083898

FRN-020624N

Place: Chandigarh.

Date: 20.07.2013.

ANNEXURE "A" REFERRED TO IN PARAGRAPH 5 OF OUR REPORT OF THE AUDITORS TO THE MEMBERS OF SURYA PHARMACEUTICAL LIMITED ON THE ACCOUNTS FOR THE YEAR ENDING 31ST MARCH, 2013:

1 (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The Company was having regular program of physical verification of its fixed assets by which all fixes assets are verified every year. In our opinion, the periodicity of physical verification is reasonable to the size of the company and nature of its assets.

(c) No fixed assets has been disposed off during the year, and therefore, do not affect the going concern assumption.

2 (a) Physical verification of stock of finished goods, work in process, stores, spares and raw materials was conducted by the management during the year. Since plants of the Company were not working on regular basis, hence we cannot comment on the usability and reliability of the inventory lying with the Company. Attention is drawn to note no 15 appearing in notes to account.

(b) Procedures for physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and book records were not material.

3 In respect of unsecured loans granted by the company to companies covered in the register under section 301 of the Companies Act, 1956 and according to information and explanation given to us:-

(a) The Company has granted unsecured loans to subsidiary of the Company and also a party listed in the register maintained under Section 301 of the Companies Act, 1956 and the amount outstanding as on 31.03.2013 was Rs.15.67 crores (Rs.NIL). The maximum balance outstanding during the year was Rs.15.67 crores.

(b) According to the information and explanation given to us, we are of the opinion that the rate of interest and terms and conditions of loan given by the Company to subsidiary Company in which the Directors of the Company are interested are prima facie prejudicial to the interest of the Company on account of the fact that the Company has granted interest free loans, whereas the Company is paying interest to banks and institutions.

(c) The Loan is repayable by the subsidiary Company on being demanded by the Company.

(d) The Company has not been able to recover the amount from the subsidiary Company and has taken no steps for the same.

(e) The Company has not taken any unsecured loans from companies/firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956.

4. In our opinion and according to the information and explanations given to us, the plants of the company are closed since last one year and we can not comment on the adequacy of internal control procedures of the company and the nature of its business with regard to the purchase of stores, raw materials including the Plant & Machinery, Vehicles, Equipment and other assets and for the sale of these goods.

5. In respect of contracts or arrangements entered in the register maintained in pursuance of section 301 of the Companies Act, 1956, to the best of our knowledge and belief and according to information and explanation given to us:

a) The particulars of contracts or arrangements referred to in section 301 that were needed to be entered in the register maintained under said section have been so entered.

b) Where each of such transaction is in excess of Rs.5 lakhs in respect of any party, the transaction have been made at price prima facie reasonable having regard to the prevailing market prices at relevant time.

6. In our opinion, and according to the information and explanations given to us, the company has not accepted fresh deposits from public during the year and the Company is generally in compliance with the provisions of Section 58A of the Act and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public.

7. The company does not have an internal audit system operational during the year. The audit committee was also not functional during the year.

8. We have reviewed the books of account maintained by the Company pursuant to the rules prescribed by the Central Government for maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the records. The cost audit report for last year has not been submitted with the concerned authorities.

9 (a) The Company is not regular in depositing undisputed dues, including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Sale Tax, Wealth Tax Service Tax, Custom Duty, Excise Duty, cess and other material statutory dues applicable to it and there are no arrears as at the year end for a Period of more than six months from the date they became payable.

(b) According to the records of the Company, the following dues of Income Tax, Sale Tax, Wealth Tax Service Tax, Custom Duty, Excise Duty, Cess etc. have not been deposited on account of some dispute.

Detail of dues of Sales Tax, Service Tax, Income Tax, Custom duty and Excise etc., which have not been deposited as at March 31.03.2013 on account of disputes are given below:-

Name of the Statute	Nature of Dues	Amount (Rs. In Lacs)	Penalty Imposed	Period to which the amount relates	Forum where dispute is pending
FT (Development & Regulation) Act, Rules & orders		6.14		2005-2006	The Jt. DGFT, Chandigarh
		408.05		2006-2007	The Jt. DGFT, Chandigarh
		59.57		2007-2008	The Jt. DGFT, Chandigarh
Section 13 of the FTDR Act, 1992		26.64	577.00	2004-2005	Appeal Filed with DGFT, New Delhi
		383.92	5262.00	2005-2006	Appeal Filed with DGFT, New Delhi
	Demand	98.58		2001-2002	The Jt. DGFT, Chandigarh
Under Section 14 for taking action under Section 11(2) & (7) of the FTDR Act, 1992		18.75		2002-2003	The Jt. DGFT, Chandigarh
		148.24		2004-2005	The Jt. DGFT, Chandigarh
		40.45		2005-2006	The Jt. DGFT, Chandigarh
		173.11		2006-2007	The Jt. DGFT, Chandigarh
		237.49		2007-2008	The Jt. DGFT, Chandigarh
		118.17		2008-2009	The Jt. DGFT, Chandigarh
	Total	1719.11	5839.00
		2.16		1998-1999	CESTAT
		17.96		1999-2000	CESTAT
		36.90		2002-2003	CESTAT
		0.86		2003-2004	CESTAT
The Central Excise Act, 1944	Demand	6.34		2008-2009	CESTAT
		349.91		2009-2010	Commissioner Appeals and Cestat
		27.21		2010-2011	Assistant Commissioner
		272.24		2011-2012	Assistant Commissioner
		483.41		2012-2013	Assistant Commissioner
	Total	1196.99
		1.83		2007-2008	Assistant Commissioner
		22.25		2008-2009	CESTAT
Service tax	Demand	133.68		2010-2011	Commissioner appeals
		17.90		2011-2012	Assistant Commissioner
		221.18		2012-2013	Assistant Commissioner
	Total	396.84
The Central Sales tax		1015.25		2012-2013	DETC, Appeals
	Demand
Custom	Demand	384.80		2008-2009	Custom
	Total	4712.99	5839.00

10. The Company has accumulated Losses. The Company has incurred cash losses of Rs. 378.32 crores during the financial year covered by our audit previous year Rs.358.76 crores. The 100% net worth of the Company has been eroded.

11. The Company has defaulted in repayment of dues amounting to Rs.1755.91 crore principal and Rs.201.88 crores interest to banks and financial institutions.

12. In our opinion and according to the information and explanations given to us, the Company has not granted loans & advances on the basis of security by way of pledge of shares, debentures & other securities.

13. In our opinion and according to the information and explanations given to us the provisions of chit fund are not applicable to the company.

14. In our opinion and according to the information and explanations given to us, the Company is not dealing in shares securities and debentures. Therefore the provision of clause 4(xiv) of CARO are not applicable to the Company.

15. In our opinion and according to the information and explanations given to us, having regard to the fact that the subsidiaries are wholly owned the term and conditions of the guarantee given by the Company for loan taken by the subsidiaries from banks are not prima facie prejudicial to the interest of the Company.

16. In our opinion and according to the information and explanations given to us, the company has not raised any term loans during the year.

17. In our opinion and according to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company, we report that no funds have been raised during the year.

18. According to the information and explanations given to us during the period covered by our audit, the Company has not made any preferential allotment of shares to the parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956.

19. According to the information and explanations given to us, during the year covered by our report, the Company has not issued any secured debenture.

20. The company has not raised any money by public issue during the year.

21. During the course of our examination of the books and records of the Company carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanation given to us, we have neither come across any instance of fraud on or by the Company noticed or reported during the year.

FOR AAD & ASSOCIATES

CHARTERED ACCOUNTANTS

Sd/-

SHAMSHER SINGH

(PROPRIETOR)

M.NO. 083898

FRN-020624N

Place: Chandigarh.

Date: 20.07.2013.