We have audited the attached Balance Sheet of BELL CERAMICS LTD, as at
 31st December, 2010, the Profit and Loss Account and also the Cash Flow
 Statement for the period 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.
 
 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.
 
 As required by the Companies (Auditor’s Report) Order, 2003 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 to the extent applicable to the Company.
 
 Further to our comments in the Annexure referred to above, we report
 that:
 
 (i) We have obtained all the information and explanations, which to
 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, the Profit and Loss Account and also the Cash
 Flow Statement dealt with by this report are in agreement with the
 books of account;
 
 (iv) In our opinion, the Balance Sheet, the Profit and Loss Account and
 also the 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;
 
 (v) The Company had filed an application during the previous year with
 the Central Government for seeking approval for removal of
 disqualification of certain Directors for subsequent appointments /
 reappointments that occurred on 1.04.2008 due to default in repayment
 of then existing debentures, which had however, during earlier year,
 been restructured into loan by the debenture holder(s) with effect from
 1.04.2008 itself. Subject to a favourable consideration of the above
 and on the basis of written representations received from the directors
 and taken on record by the Board of Directors, we report that none of
 the directors is disqualified as on 31st December 2010 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 according to the information and 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 31st December, 2010;
 
 b) in the case of the Profit and Loss Account, of the loss for the
 period ended on that date; and
 
 c) in the case of the Cash Flow Statement, of the cash flows for the
 period ended on that date.
 
 ANNEXURE TO THE AUDITORS’ REPORT
 
 1a) In our opinion and as per the information and explanation provided
 to us, the Company is maintaining proper records showing full
 particulars including quantitative details and situation of its fixed
 assets.
 
 1b) All the assets have not been physically verified by the Management
 during the year, however, there exists a programme of verification of
 the assets over a period. In our opinion, the frequency of verification
 of the fixed assets by the management is at reasonable intervals having
 regard to the size of the Company and nature of the assets and no
 material discrepancies were noticed on such verification.
 
 1c) During the year, the Company has not disposed off a substantial
 part of the fixed assets. Based on the information and explanation
 given by the management and on the basis of audit procedures performed
 by us, we are of the opinion that the sale of the fixed assets, if any,
 has not affected the going concern status of the Company.  
 
 2a) The inventories (except for clay, body and glaze material in work
 in process, owing to their nature), have been physically verified
 during the year by the management. In our opinion, the frequency of the
 verification is reasonable.
 
 2b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of stocks followed
 by the Management were found reasonable and adequate in relation to the
 size of the Company and the nature of its business.
 
 2c) The Company is maintaining proper records of inventory. The
 discrepancies noticed on verification between the physical stocks and
 book records were not material in relation to the operations of the
 Company and the same have been properly dealt with in the books of
 account.
 
 3.  As informed to us, the Company has not taken / granted any loans,
 secured or unsecured from / to companies, firms or other parties listed
 in the register maintained under Section 301 of the Companies Act,
 1956.
 
 4.  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 and fixed assets and for
 the sale of goods and services. During the course of our audit, we have
 not observed any continuing failure to correct major weaknesses in the
 internal control systems.
 
 5a) 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 particulars of contracts or arrangements that need to
 be entered into the register maintained under Section 301 of the
 Companies Act, 1956 have been so entered.
 
 5b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements entered in the register maintained under Section 301 of
 the Companies Act, 1956 and exceeding the value of rupees five lakhs in
 respect of any party during the year have been made at prices which are
 prima facie reasonable having regard to prevailing market prices at the
 relevant time where such prices are available.
 
 6.  In our opinion and according to the information and explanations
 given to us, the Company has not accepted any deposits covered by the
 provisions of Sections 58A and 58AA or any other relevant provisions of
 the Companies Act, 1956 and the Companies (Acceptance of Deposits)
 Rules, 1975 and hence the provisions of clause 4 (vi) of the Companies
 (Auditor’s Report) Order, 2003 are not applicable to the Company.
 
 7.  Internal audit has been conducted by an independent firm of
 Chartered Accountants during the period and is commensurate with the
 size of the Company and nature of its business.
 
 8.  The Central Government has not prescribed for the Company the
 maintenance of cost records under clause (d) of Sub Section of (1) of
 Section 209 of the Companies Act, 1956 and hence the provisions of
 clause 4 (viii) of the Companies (Auditor’s Report) Order, 2003 are not
 applicable to the Company.
 
 9a) The Company has generally been regular in depositing undisputed
 statutory dues including provident fund, investor education protection
 fund, employees state insurance, income tax, sales tax, value added
 tax, wealth tax, service tax, custom duty, excise duty, cess and other
 applicable statutory dues with appropriate authorities except delays in
 deposit in few cases of tax deducted at source and value added tax.
 
 According to the information and explanations given to us, except for
 dues of tax deducted at source and fringe benefit tax (including
 interest on delay of deposit) of Rs.16,976,800/- (Rs.16,043,111/- since
 paid) outstanding for the period of more than six months from the date
 they became payable, there are no undisputed amounts outstanding as at
 the year end for a period of more than six months from the date they
 became payable in respect of income tax, sales tax, wealth tax, service
 tax, custom duty, excise duty and cess.
 
 9b) According to the records of the Company, there are no dues
 outstanding of income tax, sales tax, wealth tax, service tax, custom
 duty, excise duty or cess on account of any dispute except as follows:
 
 Nature of Statute  Year to which    Amount 
                                     unpaid   Forum where dispute is 
                                              pending
                     it relates      (Rs in 
                                     lakhs)
 
 Uttar Pradesh 
 Trade Tax Act,       2006-07         1.88    Joint Commissioner
                                              (Appeals), Trade Tax Range
                                               - III, Lucknow
 
 Andhra Pradesh 
 Value Added          2005-06         4.90    High Court of Andhra 
                                              Pradesh
 Tax Act, 2005        2006-07
 
 Central Excise & 
 Customs Act          1994-95         0.20    Customs Excise& Service 
                                              Tax Appellate
                                              Tribunal (CESTAT), Mumbai
 
 Central Excise & 
 Customs Act          2007-08        21.54    Commissioner (Appeals), 
                                              Vadodara
 
 Income Tax Act, 
 1961                AY 1990-91      16.93    Supreme Court of India
 
 Central Excise & 
 Customs Act        January 2005 to  11.02    Commissioner 
                                              (Central Excise & Customs)-
 (Service Tax)       March 2010               Appeals, Bharuch & 
                                              Bangalore
 
 Income Tax Act, 
 1961                AY 1995-96      22.37    Income Tax Appellate 
                                              Tribunal, Ahmedabad
 
 Andhra Pradesh 
 Value Added         2006-07 to      20.25    Additional Commissioner 
                                              (CT) (Legal),
 
 Tax Act, 2005        2009-10                 Hyderabad, Andhra Pradesh
 
 TOTAL                               99.09
 
 
 10.  In our opinion the accumulated losses of the Company are not more
 than fifty percent of its net worth. The Company has not incurred cash
 losses during the financial year covered by our audit as also during
 the immediately preceding financial year.
 
 11.  Based on our audit procedures and in our opinion and according to
 the information and explanations given by the management, the following
 amounts are overdue to a financial institution, bank or debenture
 holders as at the Balance Sheet date: -
 
 Name of the Financial 
 Institution               Year to which it relates   Overdue Amount 
                                                     (including interest)
                                                       (Rs. in lakhs)
 
 IDBI Bank Limited        April 2008- December 2010        440.96*
 
 Bank of India                  2010-2011                   28.95
 
 *represents interest recompense amount (refer note 4 of Schedule 17B
 attached to the accounts)
 
 12.  As the Company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other securities
 the provisions of clause 4 (xii) of the Companies (Auditor’s Report)
 Order, 2003 are not applicable to the Company.
 
 13.  In our opinion, the Company is not a chit fund or a nidhi / mutual
 benefit fund / society, hence the provisions of clause 4 (xiii) of the
 Companies (Auditor’s Report) Order, 2003 are not applicable to the
 Company.
 
 14.  Based on our examination of the records and evaluation of the
 related internal controls, we are of the opinion that proper records
 have been maintained of the transactions and contracts of dealing or
 trading in shares and timely entries have been made in those records.
 We also report that the Company has held the shares as investments in
 its own name.
 
 15.  The Company has not given any guarantee for loans taken by others
 from banks or financial institutions, hence the provisions of clause 4
 (xv) of the Companies (Auditor’s Report) Order, 2003 are not applicable
 to the Company.
 
 16.  In our opinion and according to the information and explanations
 furnished to us, the term loans have been applied for the purpose for
 which they were raised.
 
 17.  According to the information and explanations given to us and on
 an overall examination of the Balance Sheet of the Company, we report
 that no funds raised on short- term basis have been used for long term
 purposes.
 
 18.  As the Company made no preferential allotment of shares to any
 parties and companies covered in the register maintained under Section
 301 of the Companies Act, 1956, the provisions of clause 4 (xviii) of
 the Companies (Auditor’s Report) Order, 2003 are not applicable to the
 Company.
 
 19.  As the Company has not issued any debentures the provisions of
 clause 4 (xix) of the Companies (Auditor’s Report) Order, 2003 are not
 applicable to the Company.
 
 20.  As the Company has not raised any money by public issues the
 provisions relating to end use thereof as per clause 4 (xx) of the
 Companies (Auditor’s Report) Order, 2003 are not applicable to the
 Company.
 
 21.  Based upon the audit procedures performed and according to the
 information and explanations given by the management, we report that no
 fraud on or by the Company has been noticed or reported during the
 course of our audit.
 
                                                For R P MALHAN & COMPANY
 
                                                   Chartered Accountants
                                                 Firm Regn No. : 000960N
 
 Place   :  New Delhi                                          VIKAS VIG
 
 Date     :25.02.2011                                            Partner
 
                                                   Membership No : 16920