Essar Steel

1.  We have audited the attached Balance Sheet of Essar Steel Limited
 (the Company) as at March 31, 2009 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 March 31,2009, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 March 31, 2009 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 March 31, 2009;
 
 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 (iii) (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:
 
 Name of the statute      Nature of dues      Amount        Amount
                                            disputed     deposited
                                             (Rs. in       (Rs. in
                                             Crores)       Crores)
 
 The Custom Act, 1962    Custom duty for 
                         technical             66.81          Nil
                         services availed
 
 The Gujarat Sales 
 tax Act,                Sales tax payable 
                         as per                 1.19          0.05
 The Orissa Sales 
 tax Act,                assessment order 
                         for 1994-95            1.36
 
 The Delhi Sales 
 tax Act and             & 1997-98 & 1998-99    1.08
 The Central Sales 
 tax Act1.95
 Sales tax               Sales tax payable 
                         as per order          72.06
                         of Deputy commissioner 
                         under section 50                   146.63
 
                         and revisionary order of
                         commissioner under 
                         section 67           873.65
 
 The Customs Act, 1962   Export duty on 
                         supply of             42.44          5.00
                         pellets
 
 The Customs Act, 1962   Short fall in 
                         fulfilling of export  38.46           Nil
                      obligations and customs
                         valuations
 
 Central Excise Act, 1944 Excise Duty demand 
                          on iron               1.42           Nil
                          ore chips
 
 Andhra Pradesh State     VAT credit on 
                          opening stock        11.40           Nil
 Sales Tax
 
 Andhra Pradesh State     Sales tax payable on  2.12          0.20
 Sales Tax                provisional assessment of
                          2005-06 and for the year
                          2003-04
 
 Name of the statute        Period to which    Forum where dispute is
                             the amount               pending
                             relates
 
 The Custom Act, 1962           1991           Supreme Court
 
 The Gujarat Sales tax Act,    1994-95      Asst. commissioner of sales tax
 The Orissa Sales tax Act,    1998-1999     Deputy commissioner of sales tax
 The Delhi Sales tax Act and  1997 to 1999  Sales tax tribunal
 The Central Sales tax Act     1997-98      Sales tax officer    
 
           
 Sales tax                                  Commissioner of sales  of tax
                                                 Ahmedabad
                            1995 to 2004-05
                                            Joint Commissioner of sales tax
                                            - Baroda
 The Customs Act, 1962         2007-08      High Court of Gujarat
 
 The Customs Act, 1962         1998-99      Supreme Court
 
 Central Excise Act, 1944    2002 to 2004   Commissioner (Appeals)
 
 Andhra Pradesh State
 Sales Tax                     2005-06      Deputy Commissioner Appellate
 
         
 Andhra Pradesh State
 Sales Tax                    2003-04 &     Appellate Deputy Commissioner
                              2005-06
 
 (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
 preceding financial year.
 
 (xi) Based on our audit procedures and as perthe 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(xiii) of the Order are not applicable to the Company.
 
 (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 under Section 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.
 
                                               S. R. BATLIBOI & CO.
                                             Chartered Accountants
                                                   per Ravi Bansal
 Place: Mumbai                                             Partner
 Date: 19th May, 2009                        Membership No.: 49365