We have audited the attached Balance Sheet of DEORA POLYTEX LIMITED as
 at 31st March, 2006 and also the annexed Profit and Loss Account of the
 company for the year ended on that date. These financial statements are
 the responsibility of the Companys management Our responsibility is to
 express an opinion on these financial statements based on our audit.
 
 1. 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 misstatements .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.
 
 2. 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.
 
 3. Further to our comments in the Annexure referred to in Paragraph I
 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 accounts as required by law have
 been kept by the company so far as appears from our examination of the
 books of the Company 
 
 c) The Balance Sheet and the Profit and Loss Account dealt with by the
 report are in agreement with the books of accounts of the company.
 
 d) The Balance Sheet and the Profit and Loss Account dealt with by this
 report are in compliance with the Accounting Standards referred to in
 Section 211(3C) of the Companies Act 1956, in so far as they are
 applicable to the company, except Accounting Standard 15(AS - 15) with
 respect to non-provision of Gratuity, Accounting Standard 13(AS13)
 with respect to diminution in the value of Investments, the impact of
 which cannot be quantified in the absence of adequate information
 
 e) On the basis of written representations received from the directors
 of the company, and taken on record by the Board of Directors, none of
 the directors are disqualified under Section 274(l)(g) of the Companies
 Act, 1956.
 
 f) Based on available information, it is not possible to quantify the
 disputed amount of statutory dues, since the company has been unable to
 furnish the necessary information.
 
 g) In our opinion and to the best of our information and according to
 the explanations given to us, subject to
 
 i) Non provision of gratuity, leave encashment and retirement benefits
 as mentioned in clause V of the Significant Accounting Policies, the
 impact of which cannot be ascertained as explained in sub-para d of
 Paragraph 3 above
 
 ii) Note No. 3 regarding confirmation from various parties
 
 iii) Note No. 6 regarding no provision for the diminution in the value
 of investments (whether quoted or unquoted), as the same cannot be
 quantified in the absence of adequate information
 
 iv) Non provision of interest/penal interest and other charges for
 non-fulfilment of various conditions of the rescheduling arrangement
 with the financial institutions, the impact of which cannot be
 quantified based on available information
 
 v) Non Provision for doubtful debts estimated at Rs. 6,40,50,245/
 
 vi) Non Provision of depreciation for the financial year 1999-2000
 amounting to Rs. 45,00,000/-
 
 vii) Non Provision of accrued fixed deposit interest, the amount of
 which cannot be ascertained in the absence of adequate information, the
 said accounts give the information required by the Companies Act, 1956
 in the manner so required and present a true and fair view
 
 i. In the case of the Balance Sheet, of the state of the affairs of
 the Company as at 31st March, 2006 and
 
 ii. In the case of the Profit and Loss Account, of the Loss for the
 year ended on that date
 
 iii.In the case of Cash Flow Statement, of the cash flow for the year
 ended on that date.
 
 ANNEXURE REFERRED TO IN PARAGRAPH 2 OF OUR REPORT OF EVER DATE ON THE
 ACCOUHT8 FOR THE YEAR ENDED 31ST MARCH. 2OO6 OF DEORA POLYTEX LIMITED
 
 On the basis of such checks as we considered appropriate and in terms
 of the information and explanations given to us, we state that :
 
 1. According to the information and explanation given to us, the
 Company has not updated the fixed assets register with respect to
 additions made from the year ending 31st March, 2003.
 
 2. The fixed assets have not been verified by the Management
 
 3. The Company has not disposed of any of its fixed assets during the
 year under review and none of its fixed assets have been revalued.
 
 4. With respect to its inventory,
 
 (a) As explained to us, the Management has physically verified the
 stocks at the close of the year. In our opinion, the frequency of
 physical verification needs to be increased to make it reasonable.
 
 (b) The procedures of physical verification, which are followed by the
 Management are reasonable and adequate in relation to the size of the
 company and the fact that the business was suspended.
 
 (c) The discrepancies noticed on physical verification of stocks as
 compared to the book records were not material and have been properly
 dealt with in the books of accounts.
 
 5. With respect to loans, it is stated as under :-
 
 (a) The company has not taken loans from/given loans to persons, firms
 or other parties covered by Section 301 of the Companies Act, 1956.
 
 (b) There is no stipulation regarding the repayment of the Principal
 amount in respect of the said loan.
 
 6. In our opinion and according to the explanations given to us, the
 internal controls in respect of purchases of stores, raw materials,
 including components, plant & machinery, equipments and other assets
 and for the sale of goods needs to be strengthened to make it
 commensurate with the size of the company and the nature of its
 business. During the course of our audit, we have not observed any
 continuing failure to correct major weaknesses in internal controls.
 
 7. According to the information and explanations given to us,
 
 (a) The register under Section 301 is not maintained.
 
 (b) The transactions made in pursuance of contracts or arrangements
 covered by 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 reasonable having regard to prevailing
 market prices at the relevant time
 
 8. During the year under review, the company has not accepted deposits
 from the public
 
 9. The Company does not have an internal audit system and no comments
 are therefore applicable.
 
 10.Maintenance of Cost Records is not applicable to the company for the
 year under review, since it has not carried on any operations..
 
 1l.With respect to statutory dues, it is stated that :
 
 (b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of Income-tax, Wealth tax, Sales
 tax, Customs duty, Excise duty-and cess were in arrears as at 31st
 March, 2006 for a period exceeding six months from the date they became
 payable, except the following :
 
 Applicable   Nature of dues   Due Date            Date of Payment
 Statute				
 	 			
 Income Tax   Tax              As per statute      Not paid till date
 Act,1961     deducted         For  the  year      of report 
              at Source        ending 31st
                               March, 2003
 
 Applicable    Amount Rs
 Statute
 
 Income Tax    7.919/- 
 Act, 1961
 
 (c) According to the information and explanations given to us, there
 are no dues of sale tax, income tax, customs duty, wealth tax, excise
 duty and cess which have not been deposited on account of any dispute.
 
 12.The accumulated losses of the Company exceeds 50% of net worth of
 the company. The Company has been declared as a Sick Company as defined
 under Section 3(l)(O) of the Sick Industrial Companies (Special
 Provisions) Act, 1985, (referred to as SICA) by the Board for
 Industrial and Financial Reconstruction vide Case No. 499/2002 (Against
 the reference being made u/s 15(1} of SICA in Form A dated
 16.10.2002). The Company has incurred cash losses of Rs. 1.06 lakhs and
 Rs. 20.71 lakhs for the financial years ending 31* March, 2006 and 31st
 March, 2005 respectively.
 
 13.The Company has defaulted in the repayment of dues to a financial
 institution or bank. All the Secured Loans taken by the Company has
 been declared as Non Performing Assets by the respective financial
 institution and Banks as on 31st March, 2006 aggregating to Rs.
 15,52,33,444/-.
 
 14.The Company has not given any guarantee for loans taken by others
 from bank or financial institutions.
 
 15.The Company has not taken any term loan during the year under
 review,
 
 16.On an overall examination of the Balance Sheet of the Company, it is
 stated that no funds raised on short term basis have been used for long
 term investment and vice versa.
 
 17. The Company did not have any outstanding debentures during the year
 
 18.The Company has not raised any money through public issue during the
 year.
 
 19.The Company has not made any preferential allotment of equity shares
 during the year under review.
 
 20.In our opinion and according to the information and explanations
 given to us, no fraud on or by the company has been noticed or reported
 during the year that causes the financial statements to be materially
 misstated.