1.  We have audited the attached Balance Sheet of ELECTROSTEEL STEELS
 LIMITED as at 31st March, 2012 and also the Profit & Loss Account and
 the Cash Flow Statement for the year ended on that date annexed thereto
 in which are incorporated the accounts of the representative office at
 China. These financial statements are the responsibility of the
 Company''s management. Our responsibility is to express an opinion on
 these financial statements based on our audit.
 
 2.  We have 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 management, as well as evaluating the overall financial statement
 presentation. We bel ieve that our audit provides a reasonable basis
 for our opinion.
 
 3.  As required by the Companies (Auditor''s Report) Order, 2003 (as
 amended) issued by the Central Government of India in terms of
 Sub-Section (4A) of Section 227 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.
 
 4.  Further to our comments above and also in the Annexure referred to
 above, we report that:
 
 (i) 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;
 
 (ii) 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 and proper returns adequate for the purposes of our audit
 have been received from the representative office;
 
 (iii) The Balance Sheet, Profit & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 (iv) In our opinion, the Balance Sheet, Profit & 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.
 
 (v) On the basis of written representations received from the
 Directors, as on 31st March, 2012, and taken on record by the Board of
 Directors, we report that none of the Directors is disqualified from
 being appointed as a Director in terms of Clause (g) of Sub-Section (1)
 of Section 274 of the Companies Act, 1956;
 
 (vi) We have relied upon the management''s representation relating to
 the disclosures in the financial statements regarding (a) segment
 reporting (Note 26); (b) related party disclosures (Note 27); (c) dues
 to Micro, Small & Medium Enterprises (Note 32) and (d) reconciliation
 and confirmation of balance of trade payables and loans and advances
 (Note 36).
 
 (vii) In our opinion, and to the best of our information and according
 to the explanations given to us, the said accounts, together with the
 notes 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:
 
 (a) in the case of the Balance Sheet, of the state of affairs of the
 Company as at March 31, 2012;
 
 (b) in the case of the Profit & Loss Account, of the loss for the year
 ended on that date;
 
 (c) in the case of the Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITORS'' REPORT
 
 Referred to in paragraph 3 of our report of even date
 
 (i) (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 (b) As explained to us, all the fixed assets have been physically
 verified by the management in a phased periodical manner, which in our
 opinion is reasonable, having regard to the size of the Company and
 nature of its assets. No material discrepancies were noticed on such
 verification.
 
 (c) As per the information and explanations given to us, the Company
 has not disposed off a substantial part of fixed assets during the
 period so as to affect its going concern status.
 
 (ii) (a) As informed to us, a part of the inventory has been physically
 verified by the management during the year.
 
 In our opinion, the frequency of such verification is reasonable.
 
 (b) As per the information given to us, the procedures of physical
 verification of inventories followed by the management, in our opinion,
 are 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. As
 explained to us, the discrepancies noticed on verification between the
 physical stocks and the book records were not material and the same
 have been properly dealt with in the books of account.
 
 (iii) According to the information and explanations given to us, the
 Company has neither granted nor taken any loan secured or unsecured
 to/from companies, firms or parties covered in the register maintained
 under Section 301 of the Companies Act, 1956. Accordingly, paragraph
 4(iii) of the Companies (Auditors'' Report) Order, 2003 is not
 applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with the size of the Company and the nature of its
 business for the purchase of inventory, fixed assets and with regard to
 sale of goods. During the course of our audit, we have neither observed
 nor have been informed of any major weaknesses in the said internal
 control system.
 
 (v) (a) According to the information and explanations given to us, we
 are of the opinion that the transactions that need to be entered in 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 such 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 any party during the period under audit, have been made at
 prices which are reasonable having regard to the prevailing market
 prices at the relevant time.
 
 (vi) No deposits within the meaning of Section 58A, 58AA or any other
 relevant provisions of the Companies Act, 1956 and the rules framed
 there under have been accepted by the Company.
 
 (vii) The Company has an internal audit system commensurate with the
 size and nature of the Company.
 
 (viii) As informed to us, the Company has made and maintained cost
 records as prescribed by the Central Government under Section 209(1)(d)
 of the Act. We have not made a detailed examination of such records.
 However, we have broadly reviewed the records maintained and are of the
 opinion, that prima facie, the prescribed accounts and records have
 been maintained.
 
 (ix) (a) According to the records of the Company examined by us, in our
 opinion, the Company is regular in depositing undisputed statutory dues
 including provident fund, investor education protection fund,
 employees'' state insurance, income tax, sales tax, wealth tax, service
 tax, customs duty, excise duty, cess and other material statutory dues
 applicable to it with the appropriate authorities.
 
 According to the information and explanations given to us, no
 undisputed amounts payable in respect of statutory dues as aforesaid
 were outstanding, as at 31 March 2012 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, customs duty, wealth tax, service
 tax, excise duty and cess which have not been deposited on account of
 any dispute, except
 
 Name of the 
 statute       Nature of       Year       Amount     Forum where dispute
               dues                      (Rs. Lacs)  is pending
 
 Central 
 Sales Tax     Sales Tax (*)  2010-11      78.39     Jharkhand Sales Tax
                                                     Tribunal 
 Act, 1956
 
 (*) A sum of Rs 35.20 lacs has been deposited by the Company.
 
 (x) In our opinion, the accumulated losses of the Company are not more
 than fifty percent of its net worth. The Company has incurred cash loss
 during the financial year covered by our audit and also in the
 immediately preceding financial year.
 
 (xi) As per our audit procedures and according to the information and
 explanations given to us, the Company has not defaulted in repayment of
 dues to financial institutions or banks as at the Balance Sheet date.
 
 (xii) According to the information and 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) The Company is not a chit fund or a nidhi/mutual benefit
 fund/society.
 
 (xiv) In our opinion and according to the information and explanations
 given to us, the Company is not a dealer or trader in shares,
 securities, debentures and other investments.
 
 (xv) According to the information and explanations given to us, the
 Company has not given any guarantee for loans taken by others from
 banks or financial institutions during the period under audit.
 
 (xvi) According to the information and explanations given to us, in our
 opinion, the term loans raised were, prima facie, either utilized for
 the purposes for which they were obtained and repayment of such loans
 or pending utilization, been temporarily invested in Mutual Funds and
 Term Deposits with Banks.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the Balance Sheet of the Company, we report
 that no funds raised on short-term basis have been used for long-term
 investment.
 
 (xviii)The Company has not made any preferential allotment of shares
 during the year to parties and companies covered in the Register
 maintained under Section 301 of the Act.
 
 (xix) The Company has not issued any debentures during the period under
 audit.
 
 (xx) The Company has not raised any money by public issue during the
 period under audit.
 
 (xxi) According to the information and explanations given to us, no
 material fraud on or by the Company has been noticed or reported during
 the year.
 
                                                B Chhawchharia & Co.
 
                                     Firm Registration No.: 305123E 
 
                                              Chartered Accountants
 
                                                    Vikram Dhanania
 
 Place : Kolkata                                            Partner
 
 Date : May 8, 2012                           Membership No. 060568