1.  We have audited the attached Balance Sheet of Essar Steel Limited
 (the Company) as at 31st March, 2010 and also the Profit and Loss
 account and the Cash Flow Statement 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.
 
 2.  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 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 (as
 amended) (the Order) 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 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;
 
 III, The balance sheet, profit and 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 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,
 
 v. On the basis of the written representations received from the
 directors, as on 31 March, 2010, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 31st March, 2010 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, the said accounts 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 31 March, 2010;
 
 b) in the case of the profit and loss account, of the profit for the
 year ended on that date; and
 
 c) in the case of cash flow statement, of the cash flows for the year
 ended on that date.
 
 
 
 Annexure referred to in paragraph [3] of our report of even date Re:
 Essar Steel Limited (the Company)
 
 
 
 
 (i) (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 (b) All fixed assets have not been physically verified by the
 management during the year but there is a regular programme of
 verification which, in our opinion, is reasonable having regard to the
 size of the Company and the nature of its assets. As informed, no
 material discrepancies were noticed on such verification,
 
 (c) There was no substantial disposal of fixed assets during the year.
 
 (ii) (a) The management has conducted physical verification of
 inventory at reasonable intervals during the year.
 
 (b) The procedures of physical verification of inventory followed by
 the management 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 and no
 material discrepancies were noticed on physical verification.
 
 (iii) (a) As Informed, the Company has not granted any loans, secured
 or unsecured to companies, firms or other parties covered in the
 register maintained under Section 301 of the Companies Act, 1956 and
 thus, the provisions of clauses (ill) (b) to (III) (d) of the Order are
 not applicable.
 
 (b) As informed, 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 and
 thus the provisions of the clauses (III) (f) and (iii) (g) of the Order
 are not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there is an adequate internal control system commensurate
 with the size of the Company and the nature of Its business, for the
 purchase of inventory and fixed assets and for the sale of goods and
 services. During the course of our audit, no major weakness has been
 noticed in the internal control system in respect of these areas.
 
 (v) According to the Information and explanations provided by the
 management, no contracts or arrangements referred to in section 301 of
 the Act were entered into during the year, that need to be entered Into
 the register maintained under that section.
 
 (vi) The Company has not accepted any deposits from the public.  
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) We have broadly reviewed the books of account maintained by the
 Company pursuant to the rules made by the Central Government for the
 maintenance of cost records under Section 209(1) (d) of the Companies
 Act, 1956, and are of the opinion that prima facie, the prescribed
 accounts and records have been made and maintained.
 
 (ix) (a) Undisputed statutory dues including provident fund, investor
 education and protection fund, or employees state insurance,
 income-tax, sales-tax, wealth-tax, service tax, customs duty, excise
 duty, cess have generally been regularly deposited with the appropriate
 authorities .
 
 (b) According to the information and explanations given to us, no
 undisputed 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 were outstanding, at the year end,
 for a period of more than six months from the date they became payable.
 
 (c) According to the records of the Company, the dues outstanding of
 income-tax, sales-tax, wealth-tax, service tax, customs duty, excise
 duty and cess on account of any dispute, are as follows: (see table on
 page no. 15)
 
 (x) The Company has no accumulated losses at the end of the financial
 year and it has not incurred cash losses In the current and immediately
 preeceding financial year.
 
 (xi) Based on our audit procedures and as per the information and
 explanations given by the management, we are of the opinion that the
 Company has not defaulted in repayment of dues to a financial
 institution or a bank. The Company did not have any outstanding
 debentures during the year.
 
 (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, debentures 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(xili) of the Order are not applicable to the Company.
 
 Name of the statute       Nature of dues      Amount       Amount
 
                                              disputed     deposited
 
                                            (Rs. in Crs)  (Rs, In Crs)
 
 The Custom Act, 1962      Custom duty          66.81          Nil
 
                           Custom Duty         186.17       186.17
 
                           a) Custom Duty       18.46
 
                           b) Penalty           20.00          Nil
 
                           Custom Duty           1.32            -
 
 Central Excise Act, 1944  Excise Duty           0.60          Nil
 
                                                21.03         8.00
          
                                                31.51            -
 
                                                37.63            -
  
                                                 1.98            -
 
                                                 0.58            -
 
                                                 0.18            -
 
                                                 0.16         0.05
 
                            Sen/ice Tax          0.72         0.57
 
 The Gujarat Sales 
 tax Act,                   Sales tax            0.90         0.05
 
 The orissa Sales 
 tax Act,                                        1.36
 
 The Delhi Sales 
 tax Act                                         1.08
 
 and The Central Sales 
 tax Act                                         1.95
 
 Sales tax                  a) Sales Tax        86.75       166.63
 
                            b) Interest         28.59
 
                            c) Penalty          64.92
 
                            a) Sales Tax       312.31
 
                            b) Penalty         468.46
 
 Andhra Pradesh State 
 Sales Tax                  Sales tax            0.26         0.13
 
 Chattisgarh Sales 
 Tax Act                    Entry Tax            0.21         0.02
 
 Orissa Value Added 
 Tax Act, 2004              Entry tax            1.43          Nil
 
 
 Name of the statute        Period to         Forum where dispute is 
 
                            which the               pending 
 
                         amount relates
 
 The Custom Act, 1962         1991            Supreme Court
 
                           2006 & 2007        Commissioner of Central 
                                              Excise, Surat
 
                            1998-99           CESTAT, Bangalore 
 
                            FY 1995           High Court, Hyderabad
 
                           2002 to 2004       Joint Commissioner, CESTAT
 
                            Jul 2000 to       Supreme Court 
 
                            June 2005
 
                            June 1995 -       Gujarat High Court 
 
                             Sep 1997
   
                             Sep 2007 -       CESTAT, Delhi.
 
                             Oct 2007
 
                           17-March 2004      Asst. Commissioner of 
                                              Central Excise, 
 
                            25-Sep 2003       Dlv- IV, Surat
 
                             July 2008 -      Supreme Court 
 
                             June 2009
 
                             May 07 to        Addl. Commissioner of 
                                              Central Excise, Suratl
                               2008
 
                             31-Jul-08        Addl. Commissioner of 
                                              Central Excise, Surat.
 
                            22 Sep 2005       CESTAT, Ahmedabad
 
 The Gujarat Sales
 tax Act,                    1994-95          Gujarat VAT Tribunal.
   
 The Orissa Sales 
 tax Act,                    1998-99          Joint Commissioner of 
                                              sales tax.
 
 The Delhi Sales tax Act   1997 to 1999       Sales tax tribunal.
 
 and The Central 
 Sales tax Act               1997-98          Sales tax officer,
 
 Sales tax                1995 to 2005-06     Commissioner of sales 
                                              tax - Ahmedabad
 
                                              Joint Commissioner of 
                                              sales tax - Baroda
 
 Andhra Pradesh 
 State Sales Tax              2003-04         Appellate Deputy 
                                              Commissioner
 
 Chattisgarh Sales 
 Tax Act                     2005-06          Appellate Deputy 
                                              Commissioner
 
 Orissa Value 
 Added Tax Act,2004          1,11.09 to       Honble high court of 
                                              Orissa
 
                              31.12,09
 
 (xiv) In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other investments.  Accordingly, the
 provisions of clause 4(xiv) of the Order are not applicable to the
 Company.
 
 (xv) According to the information and explanations given to us, the
 Company has given guarantee for loans taken by others from bank or
 financial institutions, the terms and conditions whereof in our opinion
 are not prima- facie prejudicial to the Interest of the Company.
 
 (xvi) Based on the information and explanations given to us by the
 management, term loans were applied for the purpose for which the loans
 were obtained.
 
 (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 or companies covered in the register
 maintained undersection 301 of the Companies Act, 1956.
 
 (xix) The Company did not have any outstanding debentures during the
 year.
 
 (xx) The Company has not raised money by public issue during the year.
 
 (xxi) Based upon the audit procedures performed for the purpose of
 reporting the true and fair view of the financial statements and as per
 the information and explanations given by the management, we report
 that no fraud on or by the Company has been noticed or reported during
 the course of our audit.
 
 
                                               For S. R. BATLIBOI & CO.
 
                                                  Chartered Accountants
 
                                      Firm registration number: 301003E
 
 
                                                        per Ravi Bansal
 
 Mumbai                                                         Partner
 
 25th August, 2010                                Membership No.: 49365