Vardhman Industries Ltd Auditors Report.

To the Members of VARDHMAN INDUSTRIES LTD.,

Report on the Standalone Financial statements Qualified Opinion

We have audited the accompanying Standalone Financial Statements of VARDHMAN INDUSTRIES LTD. ("the Company"], which comprise the Balance Sheet as at March 31, 2019, and the Statement of Profit and Loss (including other comprehensive income], Cash Flow Statement and the statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory information (herein after referred to as "Standalone Financial Statements"].

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in Basis for Qualified Opinion section of our report, the standalone financial statements give the information required by the Companies Act 2013 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 31 March, 2019, and its Profit and Loss (including other comprehensive income], Cash Flow Statement and its statement of changes in equity for the year ended.

Basis for Qualified Opinion

Significant amount is receivable from related parties under the head loans and capital advances which have been standing in the books of account since long whose recoverability is also doubtful as one of the parties has also went into CIRP process, no provision for such doubtful receivables has been made by the company.

Emphasis of Matter

We draw attention to the following:

1. The company has gone into Corporate Insolvency Resolution Process ("CIRP"] vide order of the National Company Law Tribunal, New Delhi Bench ("NCLT"] dated November 16, 2017, under the provision of the Insolvency & Bankruptcy Code 2016 ("Code"]. Pursuant to the Order, the powers of the Board of Directors stand suspended and such powers are exercisable by Mr. Ashok Gulla, who has been appointed as Resolution Professional ("RP"] by NCLT.

Accordingly, Mr. Ashok Gulla took control of management and operations of the company. As the powers of the Board of Directors had been suspended, the financial statements have not been adopted by Board of Directors however, the same have been signed by Mr. Rahul Jain, Managing Director of Company and Mr. Anil Kumar Surya, Chief Financial Officer and Mrs. Reema, Company Secretary, confirming accuracy and completeness of the results. These Standalone Ind AS financial statements have thereafter been taken on record by the RP on May 30, 2019.

Vardhman Industries Limited which is under Corporate Insolvency Resolution Process invited Expression of Interest for the Submission of Resolution Plan as per the provision of Insolvency and Bankruptcy Code, 2016. In response to the Expression of Interest, JSW Steels Limited ("Resolution Applicant"] had submitted its Resolution Plan which has been unanimously approved by Committee of Creditors. The Resolution Plan approved by Committee of Creditors has been submitted to Honble National Company Law Board Tribunal - Delhi. The Honble NCLT had pronounced its order on December 19, 2018, approving the Resolution Plan and subsequently a clarification order on the application of JSW Steel Limited was pronounced on April 16, 2019 by Honble NCLT. The resolution applicant has filed an appeal challenging the said NCLT order before NCLAT in which an interim order was passed on 30 April, 2019 suggesting that the resolution plan as approved by the COC may be implemented. The resolution applicant has further filed an Appeal before the Honble Supreme Court against the interim order of NCLAT in which the Honble Supreme Court vide an order dated 10 May, 2019 has ordered status quo and also requested the Honble NCLAT to take up the matter on 28 May, 2019 and dispose it off.

2. The company is undergoing the Corporate Insolvency Resolution Process, pending the completion of the CIRP, the financials statements of the company have been prepared on going concern basis.

3. As per "Indian Accounting Standard 36" which talks about impairment of asset, if the carrying amount of the asset is more than recoverable amount then asset need to be impaired.

4. Trade receivables, loans & advances and other recoverable at March 31, 2019 are subject to confirmation and reconciliation.

5. In the absence of any information on interest on outstanding dues to the bank in respect to sub-standard accounts, bank balances are subject to confirmation from bank statement.

6. No interest expense has been booked during the period ended March 31, 2019. However, IDBI Bank charged interest on working capital Rs.533.98 lakhs & interest on term loan Rs.23.54 lakhs which is not considered.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have determined the matter described below to be the key audit matter to be communicated in our report.

Company was having investment of amounting Rs. 4.25 crore in Vallabh Textile Company Limited, Net worth of investee company was eroded in FY 2017-18 as well as investee company went into CIRP (Corporate Insolvency Resolution Process) in Financial Year 2018-19. Accordingly, the management has taken a decision to get the investment at its fair value considering the on going scenario of the investee company and its net worth. Hence, a loss of amounting Rs. 1,43,22,500/- has been booked in FY 2017-18 & amounting Rs. 2,81,77,500 was booked in the Current Year.

Information other than the financial statements and Auditors Report thereon

The Companys Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements and our auditors report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Management and Those Charged with Governances Responsibility for the Standalone Ind AS financial statements

The Management and board of directors of the company are responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (the act) with respect to the preparation of these standalone 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 Companies (Indian Accounting Standards) Rules, 2015.

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; 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 standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Companys ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Auditors Responsibility

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3) (i) of the Act, we are also responsible for explaining our opinion on whether the Company has adequate internal financial controls system in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2016 ("the Order") issued by the Central Government of India in terms of sub-section (11) of section143 of the Act, we give in the Annexure 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) Except for the matters described in the Basis of Qualified Section, we have sought and 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 except for the matters stated in the Basis of Qualified Section, 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 including Other Comprehensive Income, Statement of Changes in Equity and the Statement of Cash Flow dealt with by this report are in agreement with the books of account.

d) In our opinion, except for the matters stated in the Basis of Qualified Section, the aforesaid standalone Ind AS financial statements comply with the applicable Indian Accounting Standards specified under Section 133 of the Act.

e) On the basis of written representations received from the directors as on March 31, 2019, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2019, from being appointed as a director in terms of Section 164(2) of the Act.

f) Except for the matters stated in the Basis of Qualified Section, there is no any other observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;

g) Except for the matters stated in the Basis of Qualified Section, there is no any other qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;

h) With respect 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"; and

i) In our opinion and to the best of our information and according to the explanations given to us, we report as under with respect to other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014:

i. The company has disclosed the impact of pending litigations on its financial position in its standalone IND AS financial statements [Refer Note no. 26]

ii. The Company did not have any long-term contracts including derivative contracts; as such the question of commenting on any material foreseeable losses thereon does not arise.

iii. There has been an occasion in case of the Company during the year under report to transfer unpaid dividend amounting Rs 432079 related to year 2009-10 to the Investor Education and Protection Fund. The same has not been deposited as is under the process to be paid.

Place: Ludhiana For K.R. Aggarwal & Associates
Date: 30/05/2019 Chartered Accountants
FRN:030088N
CA Vivek Aneja
(Partner)
Membership No: 544757

ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT

On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of our audit, we report that:

I. In respect offixed assets:

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

b) According to the information and explanation given to us the company has a regular program of physical verification of fixed assets by which all fixed assets are verified.

c) According to information and explanation given to us, the title deeds of immovable Properties are held in the name of the company.

On scrutiny of ROC charge record & board minutes, it was found that two immovable property held in the name of a company, has been pledged as security to Punjab National Bank in favour of Vallabh Steel Limited. However, the company has not availed any credit facility from Punjab National Bank.

II. In respect of Inventories: -

a) According to information and explanations given to us, the inventories have been physical verified during the year by the management. In our opinion, the frequency of 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 the nature of its business.

c) The company has maintained proper records of inventory. As explained to us, the discrepancies noticed on physical verification were not material. However, the discrepancies noticed have been properly dealt with in the books of account.

According to the information and explanations given to us, the Company has granted secured or unsecured loans to companies, firms, Limited Liability partnerships or other parties covered in the Register maintained under section 189 of the Act. Following are the unsecured loans which have been given by company to its related parties:

PARTY NAME AMOUNT
VALLABH STEEL EAST LTD 89092100
JSW VALABH TINPLATE PVT LTD 76653717
VALLABH STEEL WEST PVT LTD 68787188
VALLABH TEXTILES COMPANY LTD 107747445
TOTAL 342280450

(a) Whether terms and conditions of the grant of such loan are not prejudicial to the companys interest?

(b) Whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments and receipts are regular?

(c) If the amount is overdue, state the total amount overdue, state the total amount overdue for more than 90 days and whether reasonable steps have been taken by the company for recovery of principal?

As the required information have not been provided to us. So, we are not able to comment on the same. Ind as impact on such are not ascertainable.

IV. In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of Sections 185 and 186 of the Act in respect of grant of loans, making investments and providing guarantees and securities, as applicable.

However, on scrutiny of ROC charge record & board minutes, it was found that two immovable property held in the name of a company, has been pledged as security to Punjab National Bank in favour of Vallabh Steel Limited.

V. In our opinion and according to the information and explanations given to us, the company has not accepted any deposit from the public covered under Section 73 to 76 of the Companies Act, 2013. Therefore, the provisions of the clause 3 (v) of the Order are not applicable to the Company.

VI. We have broadly reviewed the records maintained by the company pursuant to the rules prescribed by the central government for maintenance of cost records under sub-section (l) of section 148 of the act and are of the opinion that prima facie, the prescribed accounts have been prepared and maintained. However, we have not made the detailed examination of records.

VII. According to the information and explanations given to us and based on the records of the company examined by us, the company is regular in depositing the undisputed statutory dues, including Provident Fund, Employees State Insurance, Income-tax, Sales-tax, Service Tax, Custom Duty, Excise Duty and other material statutory dues, as applicable, with the appropriate authorities in India.

According to the information and explanation given to us and based on the records of the company examined by us, there are no dues of Provident Fund, Employees State Insurance, Income-tax, Sales-tax, Service Tax, Custom Duty, Excise Duty and other material statutory dues which have not been deposited on account of any disputes.

VIII. According to the records of the Company examined by us and the information and explanations given to us, the Company has defaulted in repayment of loans or borrowings to bank and has gone into Corporate Insolvency Resolution Process ("CIRP") vide order of the National Company Law Tribunal, New Delhi Bench ("NCLT") dated November 16, 2017. Mr. Ashok Gulla, who has been appointed as Resolution Professional ("RP") by NCLT & powers of the Board of Directors stands suspended and such powers are exercisable by him. The company has also not issued debentures during the year and has not taken any fresh loans or borrowings from Government.

IX. The Company did not raise any money by way of initial public offer or further public offer (including debt instruments) and term loans during the year. Accordingly, paragraph 3 (ix) of the Order is not applicable.

X. To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company or no material fraud on the Company by its officers or employees has been noticed or reported during the year.

XI. In our opinion and according to the information and explanations given to us, the Company has paid/provided managerial remuneration in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Act.

XII. In our opinion and according to the information and explanations given to us, the Company is not a Nidhi company. Accordingly, paragraph 3(xii) of the Order is not applicable.

XIII. In our opinion and according to the information and explanations given to us, the Company is in compliance with Section 177 and 188 of the Companies Act, 2013 where applicable, for all transactions with the related parties and the details of related party transactions have been disclosed in the standalone financial statements as required by the applicable accounting standards.

XIV. During the year, the Company has not made any preferential allotment or private placement of shares or fully or partly paid convertible debentures and hence reporting under clause 3 (xiv) of the Order is not applicable to the Company.

XV. In our opinion and according to the information and explanations given to us, during the year the Company has not entered into any non-cash transactions with its Directors or persons connected to its directors and hence provisions of section 192 of the Companies Act, 2013 are not applicable to the Company.

XVI. The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

Annexure - B to Independent Auditors Report (Referred to in our report of even date)

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 VARDHMAN INDUSTRIES LTD. as of 31st March 2019 in conjunction with our audit of the standalone Ind AS 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 (ICAI).

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 was 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 judgment, including the assessment of the risks of material misstatement of the standalone Ind AS 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 standalone Ind AS 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 standalone Ind AS 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 standalone Ind AS 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 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 to the best of our information and according to the explanations given to us, the company Except for the matters stated in the Basis of Qualified Section has an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March 2019, 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.

For K.R. Aggarwal & Associates
Chartered Accountants
Place: Ludhiana FRN:030088N
Date: 30/05/2019 CA Vivek Aneja
(Partner)
Membership No: 544757