1.  We have audited the attached balance sheet of M/s Arihant
 Foundations & Housing Limited (the Company) as at 30th September
 2011, and also the annexed profit and loss account of the Company 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 on our
 audit.
 
 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 signifcant 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 (the
 Order), as amended by the Companies (Auditor''s Report) (Amendment)
 Order 2004, 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 specifed in paragraphs 4 and
 5 of the said Order.
 
 4.  Further to our comments 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 our
 audit;
 
 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 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, except in
 case of HUDCO the company has not accrued interest for the period
 amounting to Rs.1,39,36,936/- and total accumulated interest for the
 period (1/07/2004 19 to 30/09/2011) amounting to Rs. 10,10,71,424/-.
 
 v) On the basis of written representations received from the directors,
 as on 30th September 2011, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 30th September 2011 from being appointed as a director in terms of
 clause (g) of sub-section (1) of section 274 of the Companies Act,
 1956;.
 
 vi) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts 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:
 
 (a) In the case of the balance sheet, of the state of affairs of the
 Company as at 30th September 2011 and
 
 (b) In the case of the profit and loss account, of the profit of the
 Company for the year ended 30th September 2011.
 
 (c) In the case of cash flow statement, of the cash flows for the year
 ended on that date.
 
 ANNEXURE
 
 Re: M/S ARIHANT FOUNDATIONS & HOUSING LIMITED Referred to in paragraph
 3 of our report of even date, On the basis of such checks we considered appropriate and according to the
information and explanations given to us during the course of audit, we state that:
 
 (i) (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets. None of the assets have been revalued during the year.
 
 (b) The fixed assets have been physically verified by the management at
 reasonable interval and no material discrepancies are noticed on such
 verification.
 
 (c) The company has not disposed off substantial part of fxed assets
 during year so as to affect its going concern status.
 
 (ii) (a) The stock of construction materials has been physically
 verified at periodic intervals and no significant discrepancies has been
 noticed on such verification during the year.
 
 (b)The procedure of physical verification of stock of building material,
 followed by the management is reasonable and adequate in relation to
 the size of the company and nature of its company.
 
 (c) The company does not maintain stock records of raw materials. We
 are of the opinion that the valuation of the stock of building is as
 per normally accepted accounting principles. The company has not
 identified slow moving building materials separately.
 
 (iii) (A) The company has granted during the year loans of unsecured in
 nature to companies, firms or other parties listed in the register
 maintained under section 301 of the companies Act 1956, and the details
 are as follows
 
 No of parties - 11, amount of loan granted during the year : Rs.
 75.41Crores, maximum amount involved in the transaction :
 Rs.74.39Crores,Closing balance of the loan is : Rs. 72.11Crores.
 
 (b) The rate of interest and other terms and conditions of loans given
 by the company, secured and unsecured are not prima facie prejudicial
 to the interest of the company.
 
 (c) The receipt of principal and interest thereon are regular.
 
 d) Where the overdue amount exceeds rupees one lakh the company has
 taken necessary steps to recover the amount and interest thereon.
 
 e) The company has taken loans, secured or unsecured from companies,
 firms or other parties listed in the register maintained under section
 301 of the companies Act 1956 and the details are as follows
 
 No of parties -7, the amount of loan taken during the year is : Rs.
 17.12Crores, maximum amount involved in the transaction : Rs.
 22.43Crores, closing balance of the loan is : Rs. 17.89Crores.
 
 (f) The rate of interest and other terms and conditions of the loan
 taken by the company, secured and unsecured are not prima facie,
 prejudicial to the interest of the company.
 
 (g) The repayment of principal and interest thereon to the concerned
 parties is also regular. During the year the company has repaid loans
 to the extent of Rs 19,30,20,515/- (iv) The company has an adequate
 internal control procedure commensurate with the size and nature of
 business for the purchase of stores and raw materials, plant &
 machinery, equipment and other assets for the sale of finished stocks.
 
 (v) (a) In our opinion and according to the information and
 explanations given by the management, contracts and arrangements
 referred to in section 301 of the Companies Act, 1956 have been entered
 in the register required to be maintained under that section.
 
 (b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of such contracts or
 arrangements entered in the register maintained under section 301 of
 the companies Act 1956 and exceeding the value of rupees fve lakhs in
 respect of any party during the year, have been made at a price which
 are reasonable having regard to the prevailing market prices at the
 relevant time.
 
 (vi) The Company has accepted fixed deposits and in our opinion and
 according to the information and explanation given to us, the directives
 issued by the Reserve Bank of India and provisions of Section 58A,58AA
 and other relevant provisions of the Companies Act, 1956 and rules
 framed there under, where applicable, have been duly complied with.  We
 are informed that no order has been passed by the company Law Board or
 National Company Law Tribunal or Reserve Bank of India or any court or
 any other tribunal. The company has fled annual return of deposits for
 the year 2011.
 
 (vii) In our opinion the company has an internal audit system
 commensurate with size and nature of its business.
 
 (viii) The Central Government has not prescribed the maintenance of
 cost records by the Company under section 209 (1) (d) of the Companies
 Act, 1956.
 
 (ix) According to the information and explanations given to us and on
 the basis of our examination of books of account, in our opinion
 
 a) The Company is regular in depositing undisputed statutory dues
 including, Investor Education and protection fund, Income Tax, Wealth
 Tax, Service Tax, Cess, Sales tax, VAT, Excise duty and any other
 material statutory dues during the year with the appropriate
 authorities. Except the company did not remit the employees provident
 fund to extent of Rs.12,30,745/-.
 
 b) According to the information and explanation given to us there are
 dues in respect of following taxes on account of dispute , which are as
 follows:-
 
 INCOME TAX
 
 Income tax          Nature      Amount       Pending before
 A.Y.                of due                   Which Authority
 
 2004-05             Regular    13,71,638    CIT Appeals
 
 2005-06             Regular    53,23,956    CIT Appeals
 
 2007-08             Regular    65,65,350    CIT Appeals
 
 SERVICE TAx
 
 Pertaining to Period     Amount     Pending Before Authority
 
 October 2004 to
 
 March 2007               2316081/- (Madras High Court)
 
 The company has fled a writ against the above service tax levied by the
 department and the penalty levied by the service tax department to the
 tune of Rs.70 lakhs vide court case No.6652/2011 before the honorable
 madras High Court and the high court has granted a stay until further
 orders.
 
 (x) The company has no accumulated losses as at September 30, 2011 and
 it has not incurred cash losses in the financial year ended on that date
 or in the immediately preceding financial year.
 
 (xi) According to the records of the company examined by us and the
 information and explanation given to us, the Company has not defaulted
 in repayment of dues to any financial institution or Bank or debenture
 holders as at the balance sheet date. (Except in case of HUDCO, wherein
 the company is disputing the amount of interest payment / Principal
 payment and rate of interest due to non release of NOC in favor of
 prospective buyers vide court case No Q.A.No 78 of 2004. The company
 had fled contempt of court petition vide petition No 384/2004 against
 HUDCO for not obeying the directions of High Court. HUDCO had fled a
 suit in the Debt Recovery Tribunal). The company has accrued a sum of
 Rs. 12,87,47,121/- as payable to HUDCO towards principal, since the
 above dispute as to principal and interest thereon a sum of Rs
 15,48,54,845/- was determined as principal by the Debt Recovery
 Tribunal. The company has paid the principal amount of Rs.15,48,54,845
 to HUDCO (Rs.12,87,47,121/- and 2,61,07,364/- as interest).  The
 company has not accrued interest to the tune Rs 10,10,71,423.40 as
 payable to HUDCO as per the order of the Debt Recovery Tribunal Dated
 8/8/2011 for the period (01/07/2004 to 30/09/2011).
 
 (xii) According to the information and explanation given to us, the
 company has not granted loans and advances on the basis of security by
 way of pledge of shares, debentures and other securities.
 
 (xiii) The provision of any special statute applicable to a chit fund /
 mutual benefit fund / societies are not applicable to the company.
 
 (xiv) In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other investments. Accordingly,
 clause 4(xiv) of the order is not applicable.
 
 (xv) In our opinion, and according to information and explanations
 given to us, the Company has not given guarantees for loans taken by
 others from banks or financial institutions.  2
 
 (xvi) According to the information and explanations given to us and on
 the basis of examination of books of accounts, the company has applied
 term loans for the purpose for which the loans were obtained.
 
 (xvii) According to the information and explanation given to us and on
 an overall examination of balance sheet of the company, we report that
 no funds raised for short term basis utilised for long term investment
 and vice versa.
 
 (xviii) According to the information and explanations given to us the
 Company has allotted equity shares on preferential basis upon
 conversion of convertible equity warrants to the parties covered in the
 register maintained under section 301 of the Companies Act, 1956. The
 price at which shares have been issued is not prejudicial to the
 interest of the company.
 
 (xix) The company has not issued any debentures during the year hence
 question of having security or registering a charge with the Registrar
 of Companies does not arise during the year.
 
 (xx) The company has not raised the public issue during the year;
 accordingly, clause 4(xx) of the Order is not applicable to the
 Company.
 
 (xxi) According to information and explanations given to us, no fraud
 on or by the company has been noticed or reported during the course of
 our audit.
 
 For B.P.JAIN & CO.
 
 CHARTERED ACCOUNTANTS
 
 Sd/-
 
 DEVENDRA KUMAR BHANDARI
 
 Partner
 
 Membership No.: 208862
 
 Place: Chennai
 
 Date: 29.11.2011