We have audited the attached Balance Sheet of BHUSHAN STEEL LIMITED
 as on 31st March, 2011 and also the Profit & Loss Account and the
 Cash Flow Statement pf the Company for the year ended on that date
 annexed thereto. These financial statments are the responsibility
 of the Company''s Management. Our responsibility is to express an
 opinion on these finacial 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 the management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 1.  As required by the Companies (Auditors'' Report) Order, 2003, issued
 by the Central Government of India in terms of Section 227 (4A) 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.
 
 2.  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 purpose 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 exa mi nation of
 those books;
 
 c) The Balance Sheet, the Profit & 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 accounts, the Balance Sheet, the Profit & Loss
 Account and the Cash Flow Statement dealt with by the report comply
 with the requirements of Accounting Standards referred to in sub
 section (3C) of section 211 of the Companies Act, 1956;
 
 e) On the basis of the written representations received from the
 Directors as on 31 st March, 2011 and taken on record by the Board of
 Directors, we report that none of the Directors is disqualified as on
 31 st March, 2011 from being appointed as a Director in terms of
 clause (g) of Sub-section (1) of Section 274 of the Companies Act, 1
 956;
 
 f) 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:
 
 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 (Referred to in paragraph 1 of our report of even date)
 
 i) In Respect of its Fixed Assets:
 
 a) The company has maintained proper records showing full particulars,
 including quantitative details and situation of fixed assets.
 
 b) The Fixed Assets covering significant value were physically verified
 during the year by the Management at such intervals which in our
 opinion, provides for the physical verification of all the Fixed Assets
 at reasonable interval having regard to the size of the Company and
 nature of its business. According to the information and explanations
 given to us by the Management, no material discrepancies have been
 noticed on such verification.
 
 c) No substantial part of fixed assets have been disposed off during
 the year.  ii) In Respect of its Inventory:
 
 a) As per information & explanations given to us, the inventory of
 finished goods, semi-finished goods and raw material at works were
 during the year physically verified by the management. In respect of
 Stores and Spare Parts and stock at yards in the custody of the third
 party and stocks in transit were verified with the confirmation or
 statement of account or correspondence of the third parties or
 subsequent receipt of goods.
 
 b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of inventories of
 the Company followed by the Management are reasonable and adequate in
 relation to the size of the Company and nature of its business.
 
 c) In our opinion and according to the information and explanations
 given to us, the Company has maintained proper records of its
 inventories, no material discrepancies were noticed on such physical
 verification.
 
 iii) In our opinion and according to information & explanations given
 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.
 
 iv) In our opinion and according to the information and explanations
 given to us, having regard to explanation that some of the items
 purchased are of special nature and suitable alternative sources are
 not readily available for obtaining comparable quotations there is an
 adequate internal control system commensurate with the size of the
 company and the nature of its business with regard to the purchase of
 inventory, 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 such internal control system.
 
 v) In respect of contracts or arrangements entered in the register
 maintained in pursuance of Section 301 of Companies Act, 1956, to the
 best of our knowledge and belief and according to the information and
 explanations given to us.
 
 a) The particular of contracts or arrangements referred to Section 301
 that needed to be entered in the register maintained under the said
 Section have been so entered.
 
 b) Where each of such transaction is in excess of Rs.5 Lacs in respect of
 any party, the transaction have been made at a price which are prima
 facie reasonable having regard to the prevailing market prices at the
 relevant time.
 
 vi) To the best of our knowledge, the company has not accepted any
 deposits covered under section 58A and 58AA or any other provisions of
 the Companies Act, 1956.
 
 vii) In our opinion, the Company has an adequate internal audit system
 commensurate with its size and the nature of its business.
 
 viii) To the best of our knowledge, the Central Government has
 prescribed the maintenance of cost records under Section 209 (1) (d) of
 the Companies Act, 1956, which have been maintained by the company and
 these have been broadly reviewed by us and we are of the opinion that,
 prima facie, the prescribed accounts and records have been made and
 maintained. However, we have not, nor we are required, carried out any
 detailed examination of such accounts and records.
 
 ix) According to the information and explanations given to us, in
 respect of statutory dues.
 
 a) The Company has generally been regular in depositing undisputed dues
 including Provident Fund, Investors'' Education and Protection Fund,
 Employees'' State Insurance, Income Tax, Sales Tax/VAT, Wealth Tax,
 Custom Duty, Excise Duty, Cess, Service Tax and any other statutory
 dues applicable to it with the appropriate authorities.
 
 b) There were no undisputed amounts payable in respect of Income Tax,
 Wealth Tax, Service Tax, Excise Duty, Cess, and other Material
 statutory dues in arrears as at 31st March, 2011 for a period of more
 than six months from the date they become payable.
 
 c) The disputed statutory dues aggregating Rs.23228.45 Lacs that have not
 been deposited on account of disputed matters pending before
 appropriate authorities are as under:
 
 Name of the           Nature of the Dues              Amount
 Statute                                           [Rs. in Lacs)
 
 The Central      Differential Duty on material 
                  supplied                              0.31
 Excise Act, 1944 to earthquake victims
                  Seizure                               0.60
 
                  Job work challan                      0.50
 
                  Modvat on Welding Electrodes          0.40
 
                                                        0.46
 
                  Demand of Excise duty, refunded by    0.52
                  the authorities, on returned of
                  Imported Capital Goods
 
                  Modvat on Tank Fitted on Trailer for  2.16
                  Temporary storage used in emergency
 
                  Rejection of Cenvet credit on steel,
                  cement,                           14355.74
                  welding electrodes, sleepers, fuel
                  oil etc.
                                                      113.11
 
                  Rejection of Cenvet Credit on 
                  HR Coils                            353.06
                  used for manufacture of HR Sheets etc.
 
                  Duty Demanded without considering   257.10
                  credit and abatement of freight
 
                  Duty Demanded on account of Under  1259.80
                  valuation
 
                  Demand of Excise Duty on removal    391.76
                  of Zinc Dross and Ash
 
                  Rejection of Cenvat credit on        90.43
                  Capital Goods
 
                                                        0.72
 
 Service Tax      Service Tax on import of service    653.69
 
                  Service Tax on Export of Goods by    52.33
                  CHA & others
 
                                                       40.60
 
 Sales Tax        Penalty on Trade Tax (Net of          0.75
                  Rs.0.38 Lacs paid under protest)
 
 Entry Tax        Entry Tax (Net of Rs.1 290 Lacs    5654.41
                  paid under protest)
 
 
 
 Name of the         Period to which     Forum where dispute
 Statue              amount related           is pending
 
 The Central
 Excise Act, 1944     F.Y. 2001-02       Commissioner CESTAT
 
                      Jan. 2002          High Court, Allahabad
 
                      Oct.2000 to        High Court, Allahabad
                      Nov.2000
 
                     April - May 1998    High Court, Allahabad
 
                      Sept.2003          High Court, Allahabad
 
                      Jan. 1999          Commissioner CESTAT
 
                      Aug, 2005 to       CESTAT (Kolkatta]
                      July, 2009         & Commissioner(A]
 
                      Oct, 2003 to       CESTAT
                      Sep, 2005
 
                      Mar, 2005 to       Appeal under
                      Jan, 2010          preperation
 
                      July, 2001 to      Commissioner(A]
                       May, 2003
 
                      Oct, 1996 to       CESTAT
                      Sep, 2000
 
                      Dec, 2006 to       CESTAT
                      Feb, 2009
 
                      F.Y. 2001-2002 &   CESTAT
                      FY 2002-2003
 
                      F.Y. 2007-2008     Commissioner(A]
 
 Service Tax          Dec, 2005 to       CESTAT
                      Aug, 2008
 
                      Dec, 2004 to       CESTAT
                      Nov, 2007
 
                      May, 2005 to       CCE(A]
                      Mar, 2010
 
 Sales Tax            F.Y. 1993-1994     Tribunal Trade
                                         Tax Ghaziabad
 
 Entry Tax            Various year up to Supreme Court
                      31st March, 2011
 
 x) The Company has no brought forward losses and has not incurred any
 cash losses during the financial year covered by our Audit and in the
 immediate preceding financial year.
 
 xi) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to
 Financial Institutions or Banks or Debenture holders.
 
 xii) On the basis of verification of accounts and records maintained by
 the Company and to the best of our knowledge and belief, the Company
 has not granted any loan and advance on the basis of security by way of
 pledge of shares, debentures and other securities.
 
 xiii) The Company is not a chit fund / nidhi / mutual benefit fund /
 society. Therefore,the provision of clause 4(xiii) of the Companies
 (Auditors'' Report) Order, 2003 is not applicable to the Company.
 
 xiv) To the best of our knowledge and according to information given to
 us, the Company is not a dealer or trader in securities. The Company
 has invested in marketable securities and mutual funds. According to
 the information and explanations given to us, proper records have been
 maintained of the transactions and contracts, and timely entries have
 been made therein. The investments in marketable securities and mutual
 funds have been held by the Company in its own name.
 
 xv) To the best of our knowledge and according to the information and
 explanations given to us, the Company has not given any guarantee for
 loans taken by others from Banks/ Financial Institutions.
 
 xvi) To the best of our knowledge and according to the information and
 explanations given to us, the term loans were applied for the purpose
 for which the loans were obtained, other than temporary deployment
 pending application.
 
 xvii) In our opinion and according to the information and explanations
 given to us and on an overall examination of Balance Sheet, we report
 that no funds raised on short term basis have not been used during the
 year for long term investments.
 
 xviii)According to the information and explanations given to us, the
 Company has made preferential allotment of Preference Shares during the
 year to parties and companies covered in the Register maintained under
 section 301 of the Companies Act, 1956. In our opinion and according to
 information and explanations given to us, the price, at which
 Preference Shares have been issued, is not prejudicial to the interest
 of the Company.
 
 xix) To the best of our knowledge and according to the information and
 explanations given to us, the Company has created securities/ charges
 as on the date of our report, in respect of Secured Debentures issued
 to the satisfaction of the Trustee of the Debentures.
 
 xx) According to the information and explanations given to us, the
 Company has not raised any money by Public Issue during the year.
 
 xxi) Based upon the audit procedure performed and information and
 explanations given by the Management, we report that no fraud on or by
 the Company has been noticed or reported during the year.
 
 For MEHRA GOEL & CO.
 
 Chartered Accountants
 (Registration No. 000517N]
 
 Sd/-
 
 R. K. MEHRA
 
 Partner
 M.No. 6102
 
 Place: New Delhi
 
 Dated July 29, 2011