Dwarikesh Sugar Industries

We have audited the attached Balance Sheet of Dwarikesh Sugar
 Industries Limited as at 30th September, 2008, the Profit & Loss
 Account and also the Cash Flow Statement of the Company for the year
 ended on that date, annexed thereto. 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.
 
 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 as
 amended by the Companies (Auditors report) (Amendment) Order, 2004
 (collectively the Order) issued by the Central Government of India in
 terms of Section 227 (4A) of the Companies Act, 1956 and on the basis
 of such checks as we considered appropriate and according to the
 information & explanations given to us, 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 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 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 examination of
 those books;
 
 c.  The Balance Sheet, Profit & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 d.  In our opinion, the said Balance Sheet, Profit & Loss Account and
 Cash flow Statement have been prepared in accordance with the
 accounting standards as prescribed under the provisions of Section 211
 (3C) of the Companies Act, 1956 to the extent applicable;
 
 e.  On the basis of written representations received from the
 directors, as on 30th September,2008 and taken on record by the Board
 of directors, we report that none of the directors is disqualified as
 on 30th September, 2008 from being appointed as a director of the
 Company in terms of Section 274 (I) (g) of the Companies Act, 1956;
 
 f.  Without qualifying our opinion, we draw attention to note 14 of
 Schedule B relating to accounting for cane purchase liability for the
 sugar season 2007-08 at Rs. 110 per quintal based on earlier interim
 Order of Honble Allahabad High Court (subsequently upheld by Honble
 Supreme Court pending final decision) instead of State Advised price of
 Rs. 125 per quintal fixed by the Uttar Pradesh Government. Pending
 completion of legal proceedings in the matter, the effect thereof on
 these accounts cannot be determined at this stage.
 
 g.  In our opinion, and to the best of our information and according to
 the explanations given to us, the said Accounts read together with the
 Significant Accounting policies in Schedule A & Notes to Accounts in
 Schedule B 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 Balance Sheet, of the state of the Companys affairs
 as at 30th September, 2008;
 
 (ii) In the case of Profit & Loss Account, of the loss of the Company
 for the year on that date; and
 
 (iii) In the case of Cash flow statement, of the cash flows for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITORS REPORT
 
 Annexure referred to in paragraph I of our report to the members of
 Dwarikesh Sugar Industries Limited on the accounts for the year ended
 30th September, 2008
 
 i. (a) The Company is maintaining proper records to show full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) As explained to us, the assets have been physically verified by the
 management in accordance with a phased programme of verification, which
 in our opinion is reasonable, considering the size and nature of its
 business. No material discrepancies have been noticed on such physical
 verification as compared to book records.
 
 (c) During the year, the Company has not disposed off substantial part
 of the fixed assets.
 
 ii. (a) As explained to us, inventory has been physically verified by
 the management at reasonable intervals during the year. In our opinion,
 the frequency of such verification is reasonable.
 
 (b) The procedures of physical verification of inventories followed by
 the management are in our opinion, reasonable and adequate in relation
 to the size of the company and the nature of its business.
 
 (c) The Company is maintaining proper records of inventory. The
 discrepancies noticed on verification between the physical stock and
 the book records were not material and have been properly dealt with in
 the books of account.
 
 iii. (a) The Company has taken unsecured loans from three companies and
 Managing Director covered in the register maintained under section 301
 of the Companies Act, 1956, maximum balance outstanding against these
 loans is Rs. 79,313,790 and year end balance is Rs. 5,864,310.
 
 (b) In our opinion, the rate of interest and other terms & conditions
 on which these loans have been taken are not, prima facie, prejudicial
 to the interest of the Company.
 
 (c) These loans are repayable on demand, therefore, there are no
 overdue amounts at the year end.
 
 (d) The company has not granted any loan, secured or unsecured, to
 companies, firms and other parties covered in the register maintained
 under section 301 of the Companies Act, 1956.
 
 (e) Since there are no such loans, comments regarding terms &
 conditions, repayment of the principal amount & interest due thereon
 and overdue amounts are not required.
 
 iv. In our opinion, and according to the information and explanations
 given to us, there are adequate internal control systems commensurate
 with the size of the Company and the nature of its business with regard
 to purchase of inventory & fixed assets and with regard to sale of
 goods & services. Further, on the basis of our examination of the books
 & records of the company, carried out in accordance with the generally
 accepted auditing practices in India, we have neither come across nor
 have we been informed of any instances of major weaknesses in the
 aforesaid internal control systems.
 
 v. (a) To the best of our knowledge & belief and 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 been so entered.
 
 (b) 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 lacs in
 respect of each party during the year have been made at prices which
 are reasonable having regard to prevailing market prices at the
 relevant time.
 
 vi. The company has not accepted any deposits from the public within
 the meaning of provisions of Section 58A, 58AA & any other relevant
 provisions of the Companies Act, 1956 including the Companies
 (Acceptance of Deposits) Rules, 1975.
 
 vii. In our opinion, the Company has an in-house internal audit system
 commensurate with its size and nature of its business.
 
 viii. In our opinion and according to the information and explanations
 given to us, the Company is maintaining accounts and records in
 accordance with the Rules prescribed by the Central Government under
 Section 209( I) (d) of the Companies Act, 1956 for maintenance of Cost
 Accounting records. However, we are not required to make a detailed
 examination of such books & records.
 
 ix. (a) The Company is generally regular in depositing with appropriate
 authorities undisputed statutory dues including Provident fund,
 Investor Education and Protection fund, Employees state insurance,
 Income tax, Sales tax, Wealth tax, Service tax, Custom duty, Excise
 duty, Cess and any other statutory dues applicable to it. There are no
 arrears of such dues outstanding as at the year end for a period of
 more than six months from the date they became payable.
 
 (b) According to the information and explanations given to us and as
 per the books & records examined by us, there are no dues of Income
 tax, Wealth tax, Service tax, Custom duty and Cess which have not been
 deposited on account of any dispute except the following in respect of
 Trade tax and Excise duty along with the forum where the dispute is
 pending:
 
                                          (Rs. In Lacs)
 Sr.         Name of statue           Nature of dues
 No.
 
 1           Uttar Pradesh Trade      Trade Tax dues
             Tax Act
 2           The Central Excise       Excise Duty
             Act, 1944                demands
 
 Disputed Amt.                      Forum where dispute is
 (net of payments made)             pending
 
 32.12                              Honble Allahabad High
                                    Court and Other Trade Tax
                                    Authorities
 105.03                             Excise Appellate Authorities
 
 x. The Company has accumulated losses as at the end of the financial
 year not exceeding fifty percent of its networth. Further, it has not
 incurred cash losses in the current financial year and in the
 immediately 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 any
 financial institution and bank.
 
 xii According to the information & explanations given to us, the
 Company has not granted loans and advances on the basis of security by
 way of pledge of shares, debentures and other securities.
 
 xiii In our opinion, the Company is not a chit fund or nidhi/ mutual
 benefit fund/ society. Therefore the relevant reporting requirements of
 the Order are not applicable to the Company.
 
 xiv According to the information and explanations given by the
 management, the Company is not dealing in or trading in shares,
 securities, debentures, and other investments and hence the related
 reporting requirements of the Order are not applicable.
 
 xv The company has not given any guarantees for loans taken by others
 from banks or financial institutions.
 
 xvi In our opinion and according to the information and explanations
 given to us, the term loans raised during the year have been applied
 for the purpose for which they were raised where such end use has been
 specified by the lender.
 
 xvii According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, long term
 assets of Rs. 54.27 crore have been financed through short term loan
 from a bank. We understand from the management that long term debt in
 lieu of the same has already been tied up.
 
 xviii During the year, the company has allotted equity shares arising
 from conversion of equity warrants which were allotted during the
 previous year on preferential basis to parties covered under section
 301 of the Companies Act, 1956. In our opinion and according to the
 information & explanations given to us, the price at which shares have
 been issued is not prejudicial to the interest of company. (Refer note
 no. 13 of Schedule B)
 
 xix. During the financial year, the Company did not issue any
 debentures nor has any outstanding debentures.
 
 xx The funds received on conversion of preferential equity warrants
 into equity shares have been utilized for augmenting the long term
 resources of the company.
 
 xxi During the course of our examination of the books & records of the
 company carried out in accordance with the generally accepted auditing
 practices in India, we have neither come across any instance of fraud
 on or by the company, noticed and reported during the year, nor have we
 been informed of such case by the management.
 
                                           For S. S. KOTHARI MEHTA & CO.
                                                   Chartered Accountants
 
                                                         ARUN K. TULSIAN
 Place : New Delhi                                               Partner
 Date  : 1st December, 2008                          Membership No.89907