We have audited the attached Balance Sheet of Bharat Commerce and
 Industries Limited as at 31st March, 2002 signed by us under reference
 to this report and the relative Profit & Loss Account for the year
 ended on that date and report as under :-
 
 1. The accounts of the Company except for Nanjangud, Thane and Rajpura
 Units have been prepared on the basis of going concern for the reasons
 stated in Note No. 7 in Schedule 23 of Notes. However, having regard to
 (a) the accumulated tosses of the Company being much in excess of its
 paid-up share capital and reserves, (b) the Companys current assets
 being in negative and also substantial accounts being overdue on long
 term loans, (c) approval having been received for permanent closure of
 the three Units of the Company, (d) stoppage of operations at the
 fourth Unit for more than two years and (e) the Company having been
 declared a Sick industrial Company in terms of the provisions of the
 Sick Industrial Companies (Special Provisions) Act, 1985, the ability
 of the Company to continue as a going concern is contingent upon the
 approval of the Rehabilitation Proposal submitted to the Board for
 industrial & Finance Reconstruction (BIFR), which is under the
 consideration of Operating Agency of BIFR.
 
 2. Subject to above and read together with our comments in
 Manufacturing and Other Companies (Auditors Report) Order 1988, given
 in para 3 infra, 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 purpose of our
 audit, except to the extent stated in Note Nos. 14 and 15 in Schedule
 23.
 
 (b) in our opinion, subject to Note No. 13 in Schedule 23, proper books
 of account, have been kept by the Company as required by law, so far as
 appears from our examination of those books.
 
 c) The Balance Sheet and the relative Profit and Loss Account dealt
 with by this report are in agreement with this books of account.
 
 (d) In our opinion, she Balance Sheet and Profit and Loss Account
 comply with the mandatory Accounting Standards referred in Sub-section
 (3C) of Section 211 of the Companies Act, 1956.
 
 (e) in our opinion and according to the information and explanations
 given to us, no person appointed as a director in the company during
 the year under audit was, prima facie, disqualified from being
 appointed as a director under Clause (g) of Sub-section (1) of Section
 274 of the Act.
 
 (f) Attention Is invited to the following Notes appearing in Schedule
 23 of Notes to Accounts.
 
 (i) Note No. 7(f) regarding nor : provision of workers wages for the
 months of June 2000 to December 2001 as per the Order of the Labour
 Commissioner amounting to Rs. 1050.12 lacs at Nagda Unit of the Company
 In view of the reasons stated in the said Note.
 
 (ii) Note No. 8 regarding non-provision of power demand raised by
 Madhya Pradesh Electricity Board amounting to Rs.276.66 Lacs which is
 being disputed by the Company.
 
 (iii) Note No. 9 regarding non-provision of DPG commission charges
 (including interest thereon) amounting to Rs.27.97 lacs for the reason
 explained in the said Note.
 
 (iv) Note No 10 regarding non-provision of income tax liabilities
 amounting to Rs.54.09 lacs as the Company is in appeal there against.
 
 (v) Note No. 12 regarding non-provision of doubtful loans and advances
 amounting to Rs. 182.80 Sacs for the reason explained in the said Note.
 
 (vi) Note No. 13 regarding non-provision of interest payable to certain
 parties amounting to Rs. 440.90 lacs for the reason explained in the
 said Note.
 
 (vii) Note No. 15 regarding non-provision of penal interest and
 liquidated damages in respect of defaults on repayment of principal and
 interest on loans from various financial institutions and banks, the
 amount where of has not been ascertained.
 
 Without considering our observations in para 1 and 2 (f) (vii) above,
 the impact of which on the financial statements could not be
 determined, had the impact of our other observations in para 2(f) been
 considered. the loss for the year would have been Rs.3017.42 lacs
 instead of Rs.1733.92 lacs and accumulated losses at the end of the
 year would have been Rs. 7935.99 lacs instead of Rs.5932.83.
 
 In our opinion and to the best of our information and according to the
 explanations givers to us, the said Balance Sheet and Profit and Los?
 Account, read together with the Notes appearing in Schedule 23, and
 subject to non disclosure of She amount payable to Small Scale
 Industrial Undertakings as stated in Note No. 14 in Schedule 23 give in
 the prescribed manner the information required by the Companies Act,
 1956. However, in view of our comments in para (1) above and the
 quantum of unprovided liabilities as set cut in para 2(f) above, we
 are not in a position to comment whether the statements of account give
 a true and fair view :
 
 (i) in the case of Balance Sheet, of the State of Affairs of the
 Company as at 31st March, 2002,
 
                     and
 
 (ii) in the case of Profit and Loss Account of the Loss of the Company
 for the year ended on that date.
 
 3. As required by the Manufacturing and other Companies (Auditors
 Report) Order, 1988, issued by the Central Government, to the extent
 applicable, and on the basis of such checks as we considered
 appropriate, we further report that :
 
 (i) The Company has maintained proper records to show full particulars
 including quantitative details and situation of fixed assets. As
 informed to us, no physical verification of fixed assets has been
 carried out during the last few years and as such, the discrepancies
 therein, if any, as compared to book records could not be ascertained.
 
 (ii) The fixed assets of the Company have not been revalued during the
 year.
 
 (iii) Physical verification has been conducted by the management at
 reasonable intervals in respect of stocks of finished goods, stores,
 spare parts and raw materials in respect of Rajpura Unit only. In
 respect of other Units, no physical verification has been conducted in
 respect of stock of finished goods, stores, spare parts and raw
 materials and the same have been considered as per the balances
 appearing in the books.
 
 (iv) The procedure followed by the management for such physical
 verification at the Rajpura Unit are, in our opinion, reasonable and
 adequate in relation to the size of the Company and the nature of its
 business.
 
 (v) No material discrepancies have been noticed on such physical
 verification as compared to book records.
 
 (vi) In our opinion on the basis of our examination, we are satisfied
 that the valuation hi the stocks subject to our comments in Para (xii)
 below is fair and proper in accordance with normally accepted
 accounting principles and is on the same basis as followed in the
 earlier years.
 
 (vii) The Company has not taken any loan, secured or unsecured, from
 the companies, firms or other parties listed in the register maintained
 under Section 301 of the Companies Act, 1956 and/or companies under She
 same management as defined under Section 370 (1B).
 
 (viii) The Company has not given any loan, secured or unsecured, to
 companies, firms or other parties listed in the register maintained
 under Section 301 of the Companies Act, 1956 and/or companies under the
 same management as defined under Section 370 (1B).
 
 (ix) Rs.84.69 lacs (including bill discounting charges) are recoverable
 from some parties since. earlier years against bills discounted and
 loans given and we are informed that the Company is making efforts for
 their recovery. Loans and advances in the nature of interest free loans
 giver, to employees are being generally repaid as stipulated.
 
 (x) In our opinion and according to the information and explanations
 given to us, the internal control procedures for the purchase of raw
 materials, consumable stores including components, plant and machinery,
 equipment and other assets and for sale of goods are commensurate with
 the size of the Company and the nature of its business.
 
 (xi) According to the information and explanations given to us, there
 are no transactions of purchase of goods and materials and sale of
 goods. materials and services made in pursuance of contracts or
 arrangements entered in the Register maintained under Section 301 of
 the Companies Act, 1956 and aggregating during the period to
 Rs.50,000/- or more in respect of each party.
 
 (xii) As explained to us, the Company has a regular procedure for the
 determination of unserviceable or damaged stores, raw materials and
 finished goods. We are informed that adequate provision has been made
 in the accounts for the loss arising on the items so determined.
 However, in view of the physical verification of stocks not having
 been conducted, the loss arising on such items, in the opinion of the
 management, is not likely to be material, is not ascertainable and
 hence, not provided for in the accounts.
 
 (xiii) The Company has complied with the provisions of Section 58A of
 the Companies Act, 1956 and the Companies (Acceptance of Deposits)
 Rules, 1975 as well as relevant directives of Reserve Bank of India
 with regard to the deposits received from its employees, their
 relatives etc.
 
 (xiv) In our opinion, reasonable records have been maintained for the
 sale and disposal of realisable scrap. The Companys operations did not
 generate any by-products.
 
 (xv) in our opinion, the scope and coverage of the internal audit is
 commensurate with the size of the Company and the nature of its
 business.
 
 (xvi) We have broadly reviewed, without making a detailed examination
 of the records, the books of account, maintained by the Company
 pursuant to the Order made by the Central Government for She
 maintenance of the 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.
 
 (xvii) The Company has generally been regular in depositing Provident
 Fund and Employees State Insurance; dues with the appropriate
 authorities.
 
 (xviii) According to the information and explanations given to us and
 the books and records examined by us, except for Rs.42.77 lacs in
 respect of sales tax, there are no undisputed amounts payable in
 respect of Income Tax, Wealth Tax, Sales Tax, Custom Duty and Excise
 Duty outstanding as at March 31, 2002 for a period exceeding six months
 from the date they become payable.
 
 (xix) The Company has a policy of authorising expenditure based on
 reasonable checks and controls. This policy is intended to ensure that
 expenses are authorised on the basis of contractual obligations or
 accepted business practices having regard to the Companys business
 needs and exigencies. In terms of these observations, we have not come
 across any expenses charged to Profit & Loss Account which, in our
 knowledge and belief, could be regarded as personal expenses.
 
 (xx) The Company is a Sick industrial Company within the meaning of
 Section 3(1) (O) of Sick Industrial Companies (Special Provisions) Act,
 1985 and has made a reference to the Board for Industrial and Financial
 Reconstruction (BIFR) in this regard.
 
                                                        Sunil Bhatia
                                                             Partner
                                               For ands on behalf of
 
 Place : New Delhi                                    D. Bhatia & Co.
 Dated : 31.07.2002                             Chartered Accountants