We have audited the attached Balance Sheet of ARCH PHARMALABS LIMITED
 (the Company) as at March 31, 2010, 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.
 
 1.  We have 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 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 the management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 2.  As required by the Companies (Auditors 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, we enclose
 in the Annexure a statement on the matters specified in paragraphs 4
 and 5 of the said Order.
 
 3.  Further to our comments in the Annexure referred to 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 those
 books;
 
 c) The Balance Sheet, the Profit and Loss Account and the Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 d) In our opinion, the Balance Sheet, the Profit and Loss Account and
 the Cash Flow statement dealt with by this report comply with the
 mandatory Accounting Standards referred to in sub-section (3C) of
 section 211 of the Companies Act, 1956;
 
 e) On the basis of written representations received from the Directors
 as on March 31, 2010 and taken on record by the Board of Directors, we
 report that none of the Directors is disqualified as on March 31, 2010
 from being appointed as a director in terms of clause (g) of
 sub-section (1) of Section 274 of the Companies Act, 1956;
 
 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
 significant accounting policies and other notes thereon in particular
 Note 10 of Schedule 14 regarding Initial Engagement - opening
 balances gives 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 at March 31,2010;
 
 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 the Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 ANNEXURE TO AUDITORS REPORT
 
 ANNEXURE REFERRED TO IN PARAGRAPH 2 OF OUR REPORT OF EVEN DATE RE: ARCH
 PHARMALABS LIMITED (THE COMPANY)
 
 1) In respect of its Fixed Assets:
 
 a) The Company is still in the process of compiling records to show
 full particulars including quantitative details and situation of fixed
 assets.
 
 b) As explained to us, the fixed assets have been physically verified
 by the Management during the year in a phased periodical manner, which
 in our opinion is reasonable, having regard to the size of the Company
 and nature of its assets. Any discrepancies , if any, will be evident
 only after the records are compiled.
 
 c) In our opinion, the Company has not disposed of substantial part of
 fixed assets during the year and the going concern status of the
 Company is not affected.
 
 2) In respect of its inventories:
 
 a) As explained to us, the inventory has been physically verified by
 the management at regular intervals. In our opinion, the frequency of
 the physical 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, there was no material discrepancies noticed on physical
 verification of inventory as compared to the book records.
 
 3) In respect of loans, secured or unsecured, granted or taken by the
 company to / from companies, firms or parties covered in the register
 maintained under Section 301 of the Companies Act, 1956: -
 
 a) The Company has given loan to a wholly owned subsidiary of the
 Company. In respect of the said loan, the maximum amount outstanding at
 any time during the year is Rs. 13.79 Crores and the year end balance
 is Rs. 13.49 Crores.
 
 b) In our opinion and according to information and explanation given to
 us, the loans given to wholly owned subsidiary is interest free and the
 other terms and conditions on which loan has been given is not, prima
 facie prejudicial to the interest of the Company.
 
 c) In respect of loan given to wholly owned subsidiary, the loan is
 interest free and repayable on demand.  Accordingly the provisions of
 Clauses 4(iii) (c) and (d) of the Companies (Auditors Report) Order,
 2003 are not applicable.
 
 d) The Company has taken unsecured loan from two companies. In respect
 of the said loans, the maximum amount outstanding at any time during
 the year is Rs. 80.00 Crores and the year end balance is Rs. 10.00
 Crores.
 
 e) According to the information and explanations given to us, the rate
 of interest and terms and conditions of such loan are not prima facie
 prejudicial to the interest of the Company.
 
 f) The payment of the principal amount and interest are regular.
 
 4) 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 for the
 purchase of inventory and fixed assets and also for the sale of goods
 and services. During the course of our audit, no major weakness has
 been noticed in the internal control system in respect of these areas.
 
 5) In respect of transactions covered under Section 301 of the
 Companies Act, 1956:
 
 a) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements, that needed to be entered in the register maintained
 under Section 301 of the Companies Act, 1956 have been so entered.
 
 b) In our opinion and according to the information and explanation
 given to us, the transactions made in pursuance of such contract or
 arrangements are unique and of specialized nature and in absence of
 
 any comparable prices, we are unable to comment if same have been made
 at prices which are reasonable having regard to the prevailing market
 prices at the relevant time.
 
 6) The Company has not accepted any deposit from the public.
 Accordingly the provisions of Clauses 4(vi) of the Companies (Auditors
 Report) Order, 2003 are not applicable.
 
 7) In our opinion, the company has an internal audit system
 commensurate with the size and nature of its business.
 
 8) To the best of our knowledge and as explained to us, the Central
 Government has not prescribed the maintenance of cost records under
 Section 209 (1) (d) of the Companies Act, 1956.
 
 9) In respect of Statutory dues:
 
 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, service tax, customs
 duty, cess and other statutory dues applicable to it.  According to the
 information and explanations given to us, no undisputed amounts payable
 in respect of provident fund, investor education and protection fund,
 employees state insurance, income-tax, service tax, sales-tax, customs
 duty, cess and other undisputed statutory dues were outstanding, as at
 March 31, 2010 for a period of more than six months from the date they
 became payable.
 
 b) The disputed statutory due amounting to Rs. 0.2111 Crores, that have
 not been deposited on account of disputed matters pending before
 appropriate authorities are as under:
 
 10) The Company does not have accumulated losses at the end of the
 financial year. The Company has not incurred cash losses during the
 financial year covered by the audit and in the immediately preceding
 financial year.
 
 11) Based on our audit procedures and according to the information and
 explanations given to us, we are of the opinion that the Company has
 not defaulted in repayment of dues to banks, financial institutions and
 debenture holders during the year under audit.
 
 12) In our opinion and according to the explanations given to us and
 based on the information available, no loans and advances have been
 granted on the basis of security by way of pledge of shares, debentures
 and other securities.
 
 13) In our opinion, the Company is not a chit fund or a nidhi / mutual
 benefit fund / society. Therefore, the provisions of clause 4 (xiii) of
 the Companies (Auditors Report) Order 2003, (as amended) are not
 applicable to the Company.
 
 14) The Company has maintained proper records of transactions and
 contracts in respect of dealing and trading in shares, securities,
 debentures and other investments and timely entries have been made
 therein.  All the shares, securities, debentures and other investments
 have been held by the Company in its own name.
 
 15) According to information and explanation given to us, the Company
 has given guarantee for loans taken by its subsidiary from a bank, the
 terms and conditions whereof in our opinion are not prima facie
 prejudicial to the interest of the Company.
 
 16) The Company has raised new terms loans during the year. The term
 loans outstanding at the beginning of the year and those raised during
 the year have been applied for the purposes for which they were raised.
 
 Name of the Statute      Nature of Dues    Amount     Period to 
                                                       which the
                                           (Rs. in 
                                            Crores)    amount 
                                                       relates
 
 Central Excise Act,1944   Excise Duty      0.0122     1994-95
 
 Central Excise Act, 1944  Excise Duty      0.0464     1995-96
 
 Central Excise Act, 1944  Excise Duty      0.0549     1996-97
 
 Customs Act, 1962         Custom Duty      0.0976     1995-96
 
 Name of the Statute         Forum where dispute is pending
 
 Central Excise Act,1944     Asst. Comm. of Central Excise
 
 Central Excise Act, 1944    Asst. Comm. of Central Excise
 
 Central Excise Act, 1944    Asst. Comm.of Central Excise 
 
 Customs Act, 1962           Commissioner of Customs, Chennai
 
 17) According to the information and explanations given to us and on an
 overall examination of the Balance Sheet of the Company, we are of the
 opinion that there are no funds raised on short term basis that have
 been used for long-term investment.
 
 18) The Company has not made any preferential allotment of shares to
 parties and companies covered under Register maintained under Section
 301 of the Companies Act, 1956.
 
 19) The Company has issued unsecured debentures during the year under
 audit, accordingly the provisions of Clauses 4 (xix) of the Companies
 (Auditors Report) Order, 2003 are not applicable.
 
 20) The Company has not raised any monies by way of public issues
 during the year.
 
 21) Based upon the audit procedures performed for the purpose of
 reporting the true and fair view of the financial statements and as per
 the information and explanations given by the management, we have not
 come across any instance of material fraud on or by the Company, noted
 or reported during the course of our audit.
 
 For M/s. CHATURVEDI & SHAH          For M/s. NAYAK & RANE 
 Chartered Accountants               Chartered Accountants
 
     Sd/-                                  Sd/-
 
 AMIT CHATURVEDI                       KISHORE RANE
 
 Partner                                 Partner
 
 Membership No. 103141                Membership No. 100788
 
 FRN:101720W                          FRN:117249W
 
 
 Place: Mumbai 
 
 Date: 29.07.2010