1.  We have audited the attached Balance Sheet of ABG SHIPYARD LIMITED,
 as at 31st March, 2011, 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 Company''s
 management. Our responsibility is to express an opinion on these
 financial statements based onouraudit.
 
 2.  We conducted our audit in accordance with auditing standards
 generally accepted in India. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement. 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.
 
 3.  As required by the Companies (Auditor''s Report) Order, 2003(as
 amended) issued by the Central Government of India in terms of
 sub-section (4A) of section 227 of the Companies Act, 1956 of India, we
 enclose in the annexure a statement on the matters specified in
 paragraphs 4 and 5 of the said order.
 
 4.  Attention is drawn to Note no. 24 of Schedule 19 whereby the
 Company has applied the principles of Accounting Standard 30 issued by
 The Institute of Chartered Accountants of India.
 
 5.  Further to our comments in the Annexure referred to above, we
 report that:
 
 (i) We have obtained all the information and explanations, which to the
 best of our knowledge and belief were necessary for the purposes of
 ouraudit;
 
 (ii) 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;
 
 (iii) The Balance sheet and Profit and Loss Account and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 (iv) In our opinion, the Balance Sheet and Profit and Loss Account
 dealt with by this report comply with the Accounting Standards referred
 to in sub-section (3C) of section 211 of the Companies Act, 1956.
 Attention is drawn to point no. 4 above whereby the Company has not
 adopted AS 30 fully but applied the principles of hedging as per AS 30
 where there are firm commitments payable and receivable;
 
 (v) On the basis of written representations received from the
 directors, as on 31st March, 2011, and taken on record by the Board of
 Directors, we report that none of the Directors is disqualified as on
 31st March, 2011 from being appointed as a director in terms of clause
 (g) of sub- section (1) of section 274 of the Companies Act, 1956.
 
 6.  In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts together with the notes
 thereon and attached thereto, give in the prescribed manner the
 information required by the Companies Act, 1956 and give a true and
 fairview 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 at 31st March, 2011;
 
 ii) In the case of the Profit and Loss Account, of the Profit of the
 Company for the year ended on that date; and
 
 iii) In the case of the Cash flow Statement, of the Cash flows of the
 Company for the year ended on that date.
 
 Annexure to Auditor''s Report
 (Referred in paragraph 3 of our report of even date to the members of
 ABG Shipyard Limited on the financial statements for the year
 ended31s,March,2011.)
 
 As required by the Companies (Auditor''s Report) Order, 2003 (as
 amended) (The Order) issued by the Central Government of India in
 terms of Section 227 (4A) of the Companies Act, 1956, on the matters
 specified in paragraphs^ and 5 of the said Order, we further report
 that:
 
 i.) (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets;
 
 (b) The fixed assets have been physically verified in a phased manner
 by the management during the year as per the program of verification
 which, in our opinion, is reasonable having regard to the size of the
 Company and nature of its assets. As informed to us no material
 discrepancies were noticed between book records and physical
 verification;
 
 (c) During the year, the Company has not disposed off any substantial
 part of fixed assets, which would affect the going concern of the
 Company.
 
 ii.) (a) The inventory has been physically verified during the year by
 the management. In our opinion, the frequency of verification is
 reasonable;
 
 (b) 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) On the basis of the records of inventory, we are of the opinion
 that the Company is maintaining proper records of inventory and no
 material discrepancies were noticed on physical verification.
 
 iii.) (a) The Company had granted unsecured loan to its wholly owned
 subsidiary which is also a party covered in the Register maintained
 under Section 301, of the Companies Act, 1956. The maximum amount
 involved during the year was 368 crores and the year end balance was
 Rs. 0.002 crores.
 
 (b) According to the information and explanations given to us, there is
 no stipulation of period of payment or rate of interest. In our opinion
 the terms of loan given are not, prima facie, prejudicial to the
 interest of the company
 
 (c) As loan outstanding at the year end is negligible amount, and there
 is no contemplation of repayment period of principal amount or
 interest, clause 4 (iii) (c) and (d) of the Order is not commented on.
 
 (d) The Company has not taken any loans, secured or unsecured, from
 companies, firms or other parties covered in the Register maintained
 under Section 301, of the Companies Act, 1956. Accordingly,
 clauses 4(iii) (f) and (g) of the Order are not applicable to the 
 Company.
 
 iv.) In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with the size of the Company and the nature of its
 business with regard to purchase of inventory, fixed assets and with
 regard to the sale of goods and services. During the course of our
 audit, we have not observed any continuing failure to correct major
 weakness in internal control.
 
 v.) (a) Based on the audit procedures applied by us and according to
 the information and explanations provided by the management, we are of
 the opinion that the contracts or arrangements that need to be entered
 into the register maintained under section 301, of the Companies Act,
 1956 have been so entered.
 
 (b) The price at which such contract or arrangement is entered is
 reasonable compared to prevailing market price.
 
 vi.) The Company has not accepted any deposit from the public during
 the year.
 
 vii.) In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 viii.) As informed to us, the maintenance of cost records have not been
 prescribed by the Central Government under clause (d) of sub section
 (1) of Section 209 of the Companies Act, 1956.
 
 ix.) (a) According to the records of the Company, the Company is
 generally regular in depositing with appropriate authorities undisputed
 statutory dues including Provident Fund, Investor Education and
 Protection Fund, Employees'' State Insurance, Income-tax, Sales-tax,
 Wealth-tax, Service tax, Custom duty, Excise duty, Cess and other
 statutory dues applicable to it. No statutory dues are outstanding for
 period of more than six months as on 31st March, 2011 except for Rs.
 6,775 of Profession Tax. However, the same has been, subsequently paid.
 
 (b) According to information and explanation given to us, the following
 dues of Service tax have not been deposited by the company on account
 of disputes:
 
 Name of the Nature of Dues Financial  Amount Rs.  Forum where dispute is
 Statute                    Year       in crores   pending.   
 
 Service Tax Matter under   2004-05 to   2.58      Appellate Tribunal
             dispute        2008-09
 
 x.) The Company does not have accumulated losses at the end of the
 financial year. The Company has not incurred any cash loss during the
 financial year covered by our audit and in the immediately preceding
 financial year.
 
 xi.) According to the information and explanations given to us, the
 Company has not defaulted in repayment of dues to any financial
 institutions, banks ordebenture holders.
 
 xii.) Based on our examination of documents and records, the Company
 has not granted any loans and advances on the basis of security by way
 of pledge of shares, debentures and othersecurities
 
 xiii) The Company is not a chitfund/ nidhi/ mutual benefit fund/
 society, to which the provisions of special statute relating to
 chitfund are applicable. Accordingly, paragraph 4 (xiii) of the Order
 is not applicable to the Company.
 
 xiv.) The Company is not engaged in dealing or trading in shares,
 securities, debentures and other investments. Accordingly, the
 provisions of clause 4(xiv) of the Order are not applicable to the
 Company.
 
 xv.) According to the information and explanations given to us, the
 Company has given guarantee of Rs. 1,800.23 crores for credit
 facilities taken by body corporates from banks and financial
 institutions, the terms and conditions whereof in our opinion are not
 prima facie prejudicial to the interest of the Company.
 
 xvi.) In our opinion and according to the information and explanations
 given to us, on the overall basis, term loans have been applied
 for the purposes for which they were obtained.
 
 xvii.)According to the information and explanations given to us and
 based on our examination of the books of account of the Company, short
 term funds to the extent of approximately 7156.74 crores have been used
 for long term purposes.
 
 xviii.)According to the information and explanations given to us, the
 Company has not made preferential allotment of shares to parties and
 companies covered in the register maintained under section 301 of the
 Companies Act, 1956. Accordingly, the provisions of paragraph 4(xviii)
 of the Order are not applicable to the Company.
 
 xix.) According to the information and explanations given to us and on
 the basis of records made available, we report that adequate security
 has been created in respect of debentures issued during the year.
 
 xx.) The Company has not raised any money by public issues during the
 year. Accordingly, paragraph 4(xx) of the Order is not applicable.
 
 xxi.) Based upon the information and explanations given by the
 management and audit procedures performed, we report that no fraud on
 or by the Company has been noticed or reported during the course of
 our audit.
 
                                                    For Nisar& Kumar
 
                                               Chartered Accountants
 
                                                      F.R.NO.107117W
 
                                                           M.N.Ahmed
 
 Place: Mumbai                                              (partner)
 
 Date :30th May, 2011                                   M  No  18380