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Auditors

Auditor's Report (Finolex Industries)
We have audited the attached Balance Sheet of Finolex Industries Limited as at 31st March 2010, and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material mis-statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 1. As required by the Companies (Auditors Report) Order, 2003 issued by the Government of India, in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in the paragraphs 4 and 5 of the said Order. 2. Further to our comments in the Annexure referred to in paragraph 1 above, 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 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 appears from our examination of the books and proper returns adequate for the purpose of our audit have been received from the branches not visited by us; c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; e) On the basis of the written representations received from the Directors as on 31st March, 2010 and taken on record by the Board of Directors, we report that none of the Directors are disqualified as on 31st March, 2010 from being appointed as Director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956 on the said date;

Year End : M

f) In our opinion, and to the best of our information and according to the explanations given to us, the said accounts, read together with the Companys accounting policies and the Notes thereto, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: i) in the case of the Balance Sheet, of the state of affairs of the Company as on 31st March, 2010; ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and iii) in the case of Cash Flow Statement, of the cash flows for the year ended on that date. Referred to in paragraph 1 of our Report of even date: i. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) Assets have been physically verified by the management during the year based on the regular programme of verification, which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. As explained, the discrepancies noticed were not material and the same have been properly dealt with in the books of account. (c) In our opinion and according to the information and explanations given to us, during the year, the Company has not disposed of any substantial/major part of fixed assets. ii. (a) As explained to us, the inventory has been physically 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 for the 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) In our opinion and according to the information and explanations given to us and on the basis of our examination of the records of the inventory, the Company is maintaining proper records of inventory. Discrepancies noticed on verification between the physical stocks and the book records were not material and have been appropriately dealt with in the books of account. iii. 1. (a) The Company had granted an unsecured loan of Rs. 45 lakhs to Finolex Plasson Industries Limited, an associate company, listed in the register maintained under Section 301 of the Companies Act, 1956 which has been repaid during the year. (b) According to the information and explanations given to us, in our opinion, the rate of interest and other terms and conditions of the

above loan granted by the Company, were not prima facie, prejudicial to the interest of the Company. (c) According to the information and explanations given to us, the company to whom loans and advances in the nature of loan were given had been repaying the principal amount as stipulated and was also regular in payment of interest. (d) There is no overdue amount of loan granted to the company listed in the register maintained under Section 301 of the Companies Act, 1956. 2. (a) According to the information and explanations given to us and on the basis of our examination of the records, the Company has accepted Inter-Corporate Deposits from the following parties listed in the register maintained under Section 301 of the Companies Act, 1956 Name of the Company Maximum Outstanding amount as at March Rs. lakhs 31,2010 Rs. lakhs AkashTatva Investments Pvt. Ltd. CommonDirector 277.00 207.00 Coated Fabrics Pvt. Ltd. Common Director 638.00 537.00 Corrugated Box Industries (I) Pvt. Ltd. Common Director 125.00 125.00 Finolib Chemicals Pvt. Ltd. Common Director 70.00 70.00 Orbit Electricals Pvt. Ltd. Common Director 177.00 50.00 (b) According to the information and explanations given to us, in our opinion, the rate of interest and other terms and conditions of above loans granted to the Company, are not prima facie, prejudicial to the interest of the Company. (c) According to the information and explanations given to us, the Company is regular in repayment of principal and payment of interest. (d) There is no overdue amount of Inter-Corporate Deposits accepted from the parties listed in the register maintained under Section 301 of the Companies Act, 1956. 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 with regard to purchase of inventories and fixed assets and with regard to the sale of goods and services. In our opinion and according to the information and explanations given to us, there is no continuing failure to correct major weakness in internal control system. v. In respect of transactions entered in the register maintained in pursuance of Section 301 of Companies Act, 1956; a) Based on audit procedures applied by us, to the best of our knowledge and belief and according to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements have been entered in the register required to be maintained under Section 301. b) According to the information and explanations given to us and excluding certain transactions of purchase of goods and materials of Relationship

special nature for which alternate quotations are not available, in our opinion, the transactions have been made at prices which are, prima facie, reasonable having regard to the prevailing market prices at the relevant time. vi. In our opinion and according given to us, the Company has not Hence, the provisions of Section provisions of the Companies Act, not applicable. to the information and explanations accepted any deposits from the public. 58A and 58AA and any other relevant 1956 and rules framed there under are

vii. In our opinion, the Company has an internal audit system commensurate with the size and nature of its business. viii.We have broadly reviewed the books of accounts maintained by the Company relating to the manufacture of PVC Resin, pursuant to the rules made by the Central Government for the 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 maintained. We have not, however, made a detailed examination of the records with a view of determining whether they are accurate and complete. ix. a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company has generally been regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance Contribution, Income Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, cess and other material statutory dues with the appropriate authorities. b) According to the records of the Company and information and explanations given to us, dues of Income Tax, Sales tax, Wealth Tax, Service Tax, Customs Duty and Excise Duty and cess, which have not been deposited on account of disputes and forum where dispute is pending are as under: Name of statute Nature of dues Amount Period to Forum where (in Rs.which the pending lakhs) amount relates 167.45 2001-02 489.12 2005-06 67.22 2006-07 5.01 2007-08 0.79 2008-09 286.98 2008-09 18.54 2008-09 6.18 2009-10 26.94 2000-01 14.03 2001-02 Commissioner High Court Commissioner CESTAT CESTAT Commissioner Deputy Commissioner Deputy Commissioner CESTAT CESTAT

Finance Act, 1994 (Service Tax) Finance Act, 1994 (Service Tax) Finance Act, 1994 (Service Tax) Finance Act, 1994 (Service Tax) Finance Act, 1994 (Service Tax) Finance Act, 1994 (Service Tax) Finance Act, 1994 (Service Tax) Finance Act, 1994 (Service Tax) Customs Customs

Service Tax Demand Service Tax Demand Service Tax Demand Service Tax Demand Service Tax Demand Service Tax Demand Service Tax Demand Service Tax Demand Customs Demand Customs Demand

Central Central Central Central Central Central Central Central Central

Excise Excise Excise Excise Excise Excise Excise Excise Excise

Excise Excise Excise Excise Excise Excise Excise Excise Excise

Demand Demand Demand Demand Demand Demand Demand Demand Demand

32.54 2.07 18.17 13.11 0.96 2.71 0.46 981.99 9.49

1996-97 1999-00 2002-03 2005-06 2005-06 2005-06 2006-07 2007-08 2008-09

Central Excise

Excise Demand

0.54 2009-10

High Court High Court CESTAT Commissioner (A) CESTAT High Court Commissioner Commissioner Additional Commissioner Deputy Commissioner

x. The Company does not have accumulated losses at the end of the financial year and the Company has not incurred any cash losses in the current and the immediately preceding financial year. xi. Based on our audit procedures and on the basis of information and explanations given by the management, we are of the opinion that the Company has not defaulted in the payment of dues to its bankers, financial institutions and debenture holders. xii. According to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. xiii.The provisions of any Special Statute applicable to chit fund or nidhi / mutual benefit fund / societies are not applicable to the Company. xiv. a) Based on the records examined by us and according to the information and explanations given to us, we are of the opinion that the Company is maintaining proper records of the transactions and contracts of dealing in shares and securities and timely entries have been made in these records. b) Based on our audit procedures and to the best of our knowledge and belief and according to the information and explanations given to us, the shares and securities have been held by the Company in its own name. xv. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks and financial institutions. xvi.To the best of our knowledge and belief and according to explanations given to us, term loans availed by the Company were, prima facie, applied by the Company during the year for the purpose for which loans were obtained. xvii.On the basis of overall examination of the financial statements including Cash Flow Statement and other financial information furnished, we are of the opinion that the funds raised on short term basis have not been used for long term investments, except to the extent of approximately Rs. 10,860.01 lakhs for acquisition / construction of fixed assets.

xviii.The Company has not made preferential allotment of shares to parties covered in the register maintained under Section 301 of the Companies Act, 1956 during the year. xix.According to the information and explanations given to us, security or charge has been created in respect of debentures issued. xx. The Company has not raised any money by public issues during the year. xxi.To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit.