We have audited the attached Balance Sheet of M/s. EMPEE DISTILLERIES
 LIMITED, Chennai as at 30th September, 2012, the Statement of Profit
 and Loss and the Cash Flow Statement for the 18 months period ended on
 that date annexed thereto. 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.
 
 1.  We conducted our audit in accordance with the 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.
 
 2.  As required by the Companies (Auditors Report) Order, 2003 (CARO)
 as amended by Companies (Auditor''s Report)(Amendment) order, 2004
 issued by the Government of India vide GSR No.766 (E) 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 paragraph 4 and 5
 of is the said Order.
 
 3.  The Company has made an Investment of Rs1.59 Crores and given share
 application (awaiting allotment) amounting to Rs 140.36 Crore to its
 subsidiary Empee Sugars and Chemicals limited (ESCL). The Net worth of
 ESCL is negative as per last audited financial statements and due to
 non availability of required raw material and other infrastructural
 problems, the Sugar producing plant of ESCL at Ambasamudaram is
 presently non operational. This may result in diminution in value of
 its investment and recoverability and/or adjustment of share
 application pending for allotment is not ascertainable. No provision
 has been made in this respect in the accounts of this company, as
 required in terms of Accounting Standard 13 issued by The Institute of
 Chartered Accountants of India as the amount is not quantifiable.
 Attention is drawn on note no 4.1 of the notes on accounts.
 
 4.  Further to our comments in the Annexure referred to in para 2 above
 and subject to our observations in para 3 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
 
 (iii) The balance sheet, statement of profit and loss and cash flow
 statement dealt with by this report are in agreement with the books of
 account.
 
 (iv) In our opinion, the balance sheet, statement of profit and loss
 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 30th September 2012 and taken on record by the Board
 of Directors, we report that none of the directors of the Company are
 disqualified as on 30th September 2012 from being appointed as a
 director, in terms of clause (g) of sub-section (1) of section 274 of
 the Companies Act, 1956;
 
 (vi) In our opinion and to the best of our information and according to
 the explanations given to us, they said accounts, read together with the
 Accounting Policies, Notes to Accounts and subject to our observations
 in para 3 above, 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, the state of affairs of the
 company as at 30th September 2012;
 
 (b) In the case of the Statement of Profit and Loss, the profit for the
 18 months period ended on that date; and
 
 (c) In the case of the Cash Flow Statement, the cash flows for the 18
 months period ended on that date.
 
                                             
 ANNEXURE TO THE AUDITORS'' REPORT OF M/S. EMPEE DISTILLERIES LIMITED,
 CHENNAI
 
 Referred to in paragraph 2 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 on the basis of available information.
 
 (b) As explained to us, all the fixed assets have been physically
 verified by the management in a phased manner over a period of three
 years. Accordingly the company has carried out physical verification of
 some of its fixed assets during the period ended 30th September 2012
 which in our opinion is reasonable having regard to the size of the
 company and the nature of its assets. No material discrepancies were
 noticed on such verification.
 
 (c) The fixed assets disposed off during the year were not substantial.
 According to the information and explanation given to us; we are of the
 opinion that the disposal of the fixed assets has not affected the
 going concern status of the company.
 
 (ii) (a) The inventory has been physically verified during the year by
 the management. In our opinion, the frequency of verification is
 reasonable.
 
 (b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of inventories
 followed by the management are reasonable and adequate in relation to
 the size of the Company and the nature of its business.
 
 (c) In our opinion and according to the explanations given to us, the
 company is maintaining proper records of inventory. The Discrepancies
 noticed on verification between physical stocks and the book records
 were not material and have been properly dealt with in the books of
 account.
 
 (iii) (a) The Company has not granted any loan during the period to the
 parties, covered in the register maintained under section 301 of the
 Companies Act, 1956 wherein the balance recoverable from 24 parties as
 at the period end is Rs.19,222.39/- lakhs out of which Rs.14,036.50/-
 lakhs was paid as share application money to its subsidiaries which is
 pending for allotment. Interest recoverable in this respect of
 application money pending allotment has not been accounted on prudence
 basis. Maximum amount outstanding anytime during the period is
 Rs.19,222.39/- lakhs.
 
 (b) In our opinion and according to the explanations given to us, the
 rate of interest and other terms and conditions of loans given by the
 company are prima facie not prejudicial to the interest of the company.
 
 (c) According to the information and explanation given to us, the loans
 granted are repayable on demand and the regularity of principal
 repayment cannot be commented.
 
 (d) According to the information and explanation given to us, as the
 loans are repayable on demand, the question of principal overdue above
 Rs.1 Lakh does not arise.
 
 (e) The company has not taken any loan during the period from the
 companies, firms or other parties, covered in the Register maintained
 under Section 301 of the Companies Act, 1956. Consequently, the
 requirement of clauses
 
 (iii) (f) and (g) of paragraph 4 of the order are not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us, the internal control procedures with regard to purchases
 of inventory, fixed assets and with regard to the sale of goods and
 services needs to be strengthened to be commensurate with the size of
 the company and the nature of its business.
 
 (v) (a) According to the information and explanations provided by the
 management, we are of the opinion that the particulars of contracts or
 arrangements referred to in sec.301 of the Companies Act, 1956 that
 need to be entered into the register maintained under sec.301 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 exceeding value of Rs.5,00,000/- have been entered into
 during the financial year at prices which are reasonable having regard
 to prevailing market prices at the relevant time.
 
 (vi) In our opinion and according to the information and explanations
 provided by the management, the company has not accepted deposits from
 public to which the provision of sec 58A and 58AA or any other relevant
 provisions of the companies Act 1956 and the Companies (Acceptance of
 deposits) Rules, 1975 with regard to the deposits accepted from the
 public are applicable. No order has been passed by the Company Law
 board, National Company Law Tribunal or Reserve Bank of India or any
 court or any other Tribunal
 
 (vii) The Internal audit system of the company needs to be
 substantially strengthened with regard to the coverage of areas and
 periodicity to be commensurate with the size and nature of its
 business.
 
 (viii) The Central Government has not prescribed the Maintenance of
 cost records under section 209 (1) (d) of the Companies Act, 1956.
 
 (ix) (a) According to the records of the company, the company is
 generally regular in depositing with appropriate authorities the
 undisputed statutory dues including amounts payable in respect of
 provident fund, investor education and protection fund, employees state
 insurance, income-tax, wealth- tax, service tax, sales-tax, customs
 duty, excise duty, cess and other undisputed statutory dues applicable
 to it.
 
 (b) Based on our audit procedure and according to information and
 explanation given to us there is no arrears of undisputed statutory
 dues which remains outstanding as at the 30th September 2012 for more
 than six months except the Dividend Distribution tax Payable for the
 year ended 31st March 2011 amounting to Rs. 1.57 Crores yet to be
 remitted by the company.
 
 (c) According to the records of the Company, sales tax, income tax,
 customs duty, wealth tax, service tax, excise duty or cess which have
 not been deposited on account of dispute are given below
 
 S     Name of 
       the Statue    Nature of Dues   Amount   Period to 
                                               which       Forum where
 No                                   in Lacs  the matter  dispute is 
                                               pertains    pending
 
 1     Income Tax 
       Act 1961      Disputed 
                     Income Tax       190.00   2005-06     Appellate
                                                           Tribunal
 
 2     Income Tax 
       Act 1961      Disputed 
                     Income Tax        24.49   2008-09     CIT
 
 3     Income Tax 
       Act 1961      Disputed 
                     Income Tax       346.09   2009-10     CIT
 
 (x) The company does not have any accumulated losses at the end of the
 financial year and has not incurred any cash losses during the
 financial year covered by our audit and in the immediately preceding
 financial year.
 
 (xi) Based on our audit procedures and according to the information and
 explanations given by the management the company has not defaulted in
 repayment of dues to financial institutions and banks. The Company has
 approached its lenders for reschedulement of such loan.
 
 (xii) According to the information and explanations given to us and
 based on the documents and records produced to us the company has not
 granted loans and advances on the basis of security by way of pledge of
 shares and other securities.
 
 (xiii) In our opinion, the Company is not a chit fund or a nidhi/
 mutual benefit fund/society. Therefore, the provisions of clause
 4(xiii) of the Companies (Auditor''s Report) Order, 2003 are not
 applicable to the company.
 
 (xiv) In our opinion and according to the information and explanations
 given to us, the Company is not dealing in or trading in shares,
 securities, debentures and other investments. Accordingly the
 provisions of clause 4 (xiv) Companies (Auditor''s Report) Order, 2003
 are not applicable to the company.
 
 (xv) According to the information and explanations given to us and
 based on the documents and records produced to us the company has not
 given any guarantee for loans taken by others from bank or financial
 institutions.
 
 (xvi) According to the information and explanations given to us the
 term loans have been applied for the purpose for which they were
 raised.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the utilization of funds, we report that the
 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
 to parties and companies covered in the register maintained under
 section 301 of the Companies Act 1956.
 
 (xix) The company did not have any outstanding debentures during the
 year.
 
 (xx) During the year the company has not raised any money from pubic by
 way of issue of shares.
 
 (xxi) According to the information and explanations given to us, no
 fraud on or by the Company has been noticed or reported during the
 course of our audit.
 
                                                    K.S.AIYAR & CO., 
 
                                               Chartered Accountants 
 
                                              (Firm Regn No: 100186W)
 
 
                                                    (S.KALAYANARAMAN)
 
 Place: Chennai- 16                                          Partner
 
 Date: December 3, 2012                                (M No: 200565)