Bombay Dyeing and Manufacturing Company

1) We have audited the attached Balance Sheet of The Bombay Dyeing and
 Manufacturing Company Limited as at March 31, 2009 and also the Profit
 and Loss Account and Cash Flow Statement of the Company for the year
 ended on that date, both annexed thereto. These financial statements
 are the responsibility of the Corripanys 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. These 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.
 
 3) 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 annex hereto a statement on the matters
 specified in paragraphs 4 and 5 of the said Order.
 
 4) Without qualifying our report, we draw attention to the following:
 
 i) Note 9 of Schedule 19 Notes to Accounts, regarding the sale of a
 portion of the commercial building under construction to its wholly
 owned subsidiary and recognition of revenue there against of Rs. 235.02
 crore (including revenue from the undivided interest in the underlying
 freehold land therein amounting to Rs. 193.34 crore) in the Profit and
 Loss Account. Attention is also drawn to the exclusion of the said
 subsidiary from consolidation, based on managements representation
 that control over it is temporary, i.e. being held exclusively with a
 view to its subsequent divestment in the near future.
 
 ii) Note 19 (iii) of Schedule 19 Notes to Accounts, regarding the
 adoption of the principles of hedge accounting enunciated in Accounting
 Standard (AS) 30 - Financial Instruments Recognition and Measurement
 with effect from April 1, 2008, in respect of derivative transactions
 entered into to hedge currency risk. Accordingly, the unrealized losses
 amounting to Rs. 37.69 crore on such derivative transactions which
 qualify as effective hedges have been recorded in the Hedging Reserve
 account. The loss for the year is lower to that extent.
 
 5) Further to our comments in the Annexure referred to in paragraph (3)
 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, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 d) In our opinion, the Balance Sheet, Profit and Loss Account and 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;
 
 e) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts read with the n^es
 thereon, 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 March 31, 2009;
 
 ii) in the case of the Profit and Loss Account, of the loss of the
 Company 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.
 
 6) On the basis of written representations received from the Directors
 of the Company as on March 31, 2009, and taken on record by the Board
 of Directors, we report that none of the Directors of the Company is
 disqualified as on March 31, 2009, from being appointed as a Director
 in terms of clause (g) of sub- section (1) of section 274 of the
 Companies Act, 1956.
  
 ANNEXURE TO THE AUDITORS REPORT
 
 Annexure to the report of the Auditors to the members of The Bombay
 Dyeing and Manufacturing Company Limited on the accounts for the year
 ended March 31, 2009 (referred to in paragraph 3 of our report of even
 date)
 
 1.  (a) The Company has maintained proper records showing
 
 full particulars, including quantitative details and situation of fixed
 assets up to the previous year. The particulars of additions during the
 year are in the process of being updated.
 
 (b) A major portion of the assets has been physically verified by the
 management during the year, which is in our opinion is reasonable,
 having regard to the size of the Company and the nature of its assets.
 The reconciliation between the book records and physical inventory of
 assets verified is still in progress, in view of which, we are unable
 to report on the discrepancies, if any.
 
 (c) The fixed assets disposed off during the year are not substantial
 and therefore do not affect the going concern assumption.
 
 2.  (a) The inventory has been physically verified by the
 
 management during the year. In our opinion, the frequency of
 verification is reasonable.
 
 (b) The procedures of physical verification of inventories followed by
 the management are generally reasonable and adequate in relation to the
 size of the Company and nature of its business.
 
 (c) The Company is generally maintaining proper records of inventory.
 The discrepancies noticed on verification between physical stock 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.  (a) The Company had given unsecured loans to two companies
 
 covered in the register maintained under section 301 of the Companies
 Act, 1956. The maximum principal amount involved during the year is Rs.
 7.5 crore. Of the said loans, one loan amounting to Rs.3.5 crore which
 was provided for in earlier years, has been written off and the
 year-end balance of the other loan is Rs. 0.5 crore. The company has
 also placed an interest free shareholders deposit of Rs.15.22 crore
 with a joint venture company, as stated in Note 12 of Schedule 19.
 
 (b) In our opinion and according to the information and explanation
 given to us, the rate of interest and other terms and conditions on
 which the loans have been granted to companies listed in the register
 maintained under section 301 of the Companies Act, 1956 were not prima
 facie prejudicial to the interest of the company, at the time when
 loans were granted.
 
 (c) As explained to us, in respect of one of the companies, the amount
 of Rs 3.5 crore has not been recovered and has been written off during
 the year and the other company has been regular in payment of interest,
 where the principle amount of Rs 0.5 crore is repayable on call.
 
 (d) According to the information and explanation given to us, except
 for the loan of Rs. 3.5 crores referred in paragraph 3 (c) above, which
 has been written off during the year, there is no overdue amount for
 more than rupees one lakh.
 
 (e) According to the information and explanation given to us, the
 Company has not taken any loans, secured or unsecured, from companies,
 firms or other parties covered in the register maintained under section
 301 of the Companies Act, 1956. In view of the foregoing, the question
 of reporting
 
 on clauses 4 (iii) (f) and 4 (iii) (g) of the said Order does arise.
 
 4.  In our opinion and according to the information and explanations
 given to us, the Company has internal control procedures which are
 generally adequate, commensurate with the size of the Company and
 nature of its business, with regard to purchases of inventory, fixed
 assets, and for the sale of goods and services, however the Company is
 implementing steps for further strengthening of the same. Further, on
 the basis of our examination of the books and records and the
 information and explanations given to us, we have not come across any
 continuing failure to correct major weakness in the internal control
 system.
 
 5.  (a) According to the information and explanations given to
 
 us, 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 generally been so entered.
 
 (b) According to the information and explanation given to us,
 transactions in pursuance of such contracts or arrangements entered
 into the register maintained under section 301 of the Companies Act,
 1956 and exceeding the value of rupees five lakhs in respect of any
 party have been made at prices which are reasonable having regard to
 the prevailing market prices or at prices for which similar
 transactions have been made with other parties, except for the
 transactions where a comparison of prices could not be made since there
 was no similar transactions with other parties or transactions of a
 special nature where comparable alternative quotation were not
 available.
 
 6.  In our opinion and according to the information and explanations
 given to us, the Company has complied with the provision of sections
 58A, 58AA or any other applicable provisions of the Companies Act,1956
 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to
 the deposits accepted from the public. 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.
 
 7.  In our opinion, the Company has an internal audit system,
 commensurate with the size and nature of its business.
 
 8.  We have broadly reviewed, without carrying out a detailed
 examination, the books of accounts maintained by the company pursuant
 to the Notification issued /order made by the Central Government for
 the maintenance of cost records under section 209(1) (d) of the
 Companies Act, 1956 in respect of Textile division of the Company and
 are of the opinion that prima facie the prescribed records have been
 maintained and the prescribed accounts are in the process of being made
 up.
 
 9.  (a) According to the records of the Company, undisputed
 
 statutory dues including Provident fund, Investor Education and
 Protection Fund, Employees State Insurance, Income tax, Sales tax,
 Wealth tax, Service tax, Excise duty, Customs duty, Cess, and other
 material statutory dues applicable to it have been regularly deposited
 with the appropriate authorities. According to the information and
 explanations given to us, no undisputed amounts were in arrears, as on
 31s1 March 2009 for a period of more than six months from the date they
 became payable.
 
 (b) According to the information and explanations given to us, there
 are no dues of Sales tax, Income tax, Custom duty, Wealth tax, Service
 tax, Excise duty or cess which have not been deposited on account of
 any dispute, except as stated below :
 
 No.           Name of the statute    Nature of Dues            Amount
                                                         (Rs. in crores)
 
 1        The Income Tax Act, 1961    Tax deducted at              2.64
                                      source
 
 2       The Wealth Tax Act, 1957       Wealth Tax                  023
 
 3       The Customs Act, 1962          Customs Duty                0.64
                                        Customs Duty                0.25
                                        Customs Duty                0.13
 
 4       The Central Excise Act,        Excise Duty                 0.31
                           1944
                                        Excise Duty                 0.16
                                        Excise Duty                 0.25
                                        Excise Duty                 0.68
                                        Excise Duty                 0.08
                                        Excise duty                  0.01
 
 Period to which the        Forum where dispute is pending
 amount relates       
 
 A.Y. 1995-96            Income Tax Appellate Tribunal,
                         Mumbai
 
 A.Y. 1993-94 to A.Y.    Income Tax Appellate Tribunal,
 1998-99                 Mumbai
 
 1989                    Deputy Commissioner of Customs,
                         Nhava Sheva
 1997                    Commissioner of Customs(Appeals),
                         Mumbai
 
 1992-93                 Commissioner of Customs Bond
                         Department, Mumbai
 
 1985-86 to 2003-04      Customs, Excise and Service Tax
                         Appellate Tribunal(CESTAT), Mumbai
 
 1989-90 to 1995-96      Commissioners of Central Excise,
                         Mumbai
 
 1998-99                 High Court, Mumbai
 
 1997-98 to 2000-01      Customs, Excise and Service Tax
                         Appellate Tribunal(CESTAT), Mumbai
 
 1999-00 to 2000-01      Customs, Excise and Service Tax
                         Appellate Tribunal(CESTAT), Mumbai
 
 2005-06                 Assistant Commissioner of Customs,
                         Mumbai
 
 10.  The Company does not have any accumulated losses at the end of the
 financial year. The company has incurred a cash loss of Rs. 138.89
 crore during the financial year covered by our audit but not in the
 immediately preceding financial year.
 
 11.  In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to
 banks, financial institution or debenture holders.
 
 12.  In our opinion and according to the information and explanations
 given to us, the Company has maintained adequate records where the
 company has granted loans and advances on the basis of security by way
 of pledge of shares.
 
 13.  The company is not a chit fund or a nidhi/ mutual benefit fund/
 society. Therefore, the provision of clause 4 (xiii) of the said Order
 are not applicable to the Company.
 
 14.  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 where the Company is dealing or
 trading in shares, securities, debentures and other investments and
 such securities are held by the Company in its own name except to the
 extent of the exemption granted under section 49 of the Companies Act,
 1956.
 
 15.  In our opinion and according to the information and explanations
 given to us, the terms and conditions on which the Company has given
 any guarantees for loans taken by others from banks or financial
 institutions are not prima facie prejudicial to the interest of the
 Company.
 
 16.  In our opinion and according to the information and explanations
 given to us, the term loans have/are being applied for the purpose for
 which they were obtained.
 
 17.  In our opinion and according to the information and explanations
 given to us and on an overall examination of the balance sheet
 
 of the Company, in our opinion, no funds raised on short term basis
 have been used for long term investment.
 
 18.  The Company has not made any preferential allotment of shares to
 parties and companies covered in the Register maintained under section
 301 of the Companies Act, 1956.
 
 19.  According to the information and explanation given to us, the
 Company had issued debentures aggregating Rs. 30 crore during the
 previous year, which have been repaid during the year; however no
 securities or charge was created in respect of the same.
 
 20.  The Company has not raised any money by public issues during the
 year. Accordingly, the question of disclosure of end use of such monies
 does not arise.
 
 21.  Based on the audit procedures performed and information and
 explanations given by the management, we report that the Company has
 based on certain acts of omission and commission detected, filed suits
 against an Executive Director of the Company in the High Court of
 Judicature at Mumbai and the matter is subjudice. Other than this no
 fraud on or by the Company has been noticed or reported during the
 year.
 
                         For and on behalf of Kalyaniwalla & Mistry
                         Chartered Accountants
                         Viraf R. Mehta
                         Partner Membership No: 32083 
 
 Place: Mumbai
 Date: June 30, 2009