Gammon India

1.  We have audited the attached Balance Sheet of Gammon India Limited
 as at 31st March, 2009 and the Profit and Loss Account and the Cash
 Flow Statement of the Company for the year ended on that date in which
 are incorporated the returns of the Nagpur branch including the
 overseas branches at Algeria, Nigeria and Kenya audited by other
 auditors. 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.  We did not audit the financial statements of Gammon India Limited -
 Nagpur Branch which was audited by the branch auditors reflecting Total
 Assets of Rs.1,26,158.03 Lacs and Total Revenue of Rs.1,05,290.21 Lacs
 whose reports have been received by us. The branch auditors in their
 report have stated that they have not audited the financial statements
 of Gammon India Limited - Kenya Branch reflecting Total Assets of Rs.
 312.77 Lacs and Expenditure of Rs. 108.97 Lacs, Gammon India Limited -
 Algeria Branch reflecting Total Assets Rs. 1,355.51 Lacs and
 Expenditure of Rs. 1,278.25 Lacs and Gammon India Limited - Nigeria
 Branch reflecting Total Assets of Rs. 57.80 Lacs and Expenditure of Rs.
 1.44 Lacs. These financial statements have been audited by other
 auditors, whose reports have been addressed to the branch and a copy of
 which is furnished to the branch auditors. Our opinion so far as
 transactions of the said branches are concerned, is based solely on
 such reports of the other auditors.
 
 4.  Without qualifying our report we invite attention to
 
 a.  Note no 11 to the notes to accounts relating to recognition of
 contract revenue of Rs. 94.54 Crores including Previous year Rs. 57.04
 Crores in which the company has received arbitration awards in its
 favour in respect of which the client has preferred an appeal for
 setting aside the said arbitration awards. Recoverability of the said
 amount under sundry debtors is dependent upon the final outcome of the
 appeals getting resolved in favour of the company.
 
 b.  Note no 26B to the notes to accounts relating to the investments in
 one of the joint ventures of a wholly owned subsidiary which has
 applied for creditors protection in a Court in Italy. The final
 outcome and the resultant investment would be dependent upon the
 approval of the courts to the composition scheme pending which no
 effects have been taken in these accounts.
 
 5.  As required by the Companies (Auditors Report) Order, 2003 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 on the basis of information and explanations received by us and
 reports of the branch auditors on which we have relied.
 
 6.  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 purpose of our
 audit.
 
 ii) In our opinion, proper books of accounts as required by law have
 been kept by the company so far as it appears from our examination of
 the books. Proper returns adequate for the purpose of our audit have
 been received from the branches not visited by us.
 
 iii) The reports on accounts of the branches audited by the other
 auditors have been forwarded to us and have been appropriately dealt by
 us in preparing our report
 
 iv) The Balance Sheet, Profit & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of accounts.
 
 v) In our opinion, the Balance Sheet, Profit and Loss Account and the
 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. Attention is invited to Note No 8(c) regarding
 non provision for mark to market losses of Rs 15.93 Crores on
 outstanding forward contract outstandings as on 31st March, 2009 which
 is not in accordance with Accounting Standard-1 and announcement made
 by the ICAI on 29th March, 2008.
 
 vi) On the basis of the written representation received from the
 directors and taken on record by the Board of Directors, we report that
 none of the directors is disqualified as on 31st March, 2009 from being
 appointed as a director in terms of Clause (g) of Sub-section (1) of
 section 274 of the Companies Act, 1956 on the said date.
 
 vii) In our opinion and to the best of our information and according to
 the explanation given to us, the accounts subject to the non-provision
 of the marked to market losses of Rs. 15.93 crores relating to
 outstanding forward contracts and read with note 36 relating to the
 companys Joint venture in Oman and the other notes thereon give the
 information required by the Companies Act, 1956 in the manner so
 require and give a true and fair view.
 
 (a) in the case of Balance Sheet of the State of Affairs of the Company
 as at 31st March, 2009
 
 (b) in the case of Profit and Loss Account of the profit for the year
 ended on 31st March, 2009 and
 
 (c) in the case of the Cash Flow Statement of the net cash flow for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITORS REPORT (REFERRED TO IN PARAGRAPH 4 OF OUR
 REPORT OF EVEN DATE)
 
 (i) (a) The Company is maintaining proper records showing particulars,
 including quantitative details and situation of fixed assets;
 
 (b) The company has a regular program for physical verification of its
 fixed assets which in our opinion is reasonable having regard to the
 size of the company and the nature of its assets and operations. In
 accordance with this program, the management during the current year
 has physically verified significant fixed assets and no material
 discrepancies have been identified on such verification.
 
 (c) The Company has not disposed off any substantial part of the fixed
 assets.
 
 (ii) (a) The company is primarily a construction company having work
 sites spread all over India and Abroad. The records of materials and
 stores are maintained at the respective sites, which have been verified
 by the management during the year at reasonable intervals. In respect
 of its manufacturing operations the stock of finished goods, stores,
 spare parts and raw materials has been physically verified by the
 management at reasonable intervals during the year.
 
 (b) In our opinion and according to the information and explanations
 given to us, the procedure of physical verification of stock followed
 by the management is reasonable and adequate in relation to the size of
 the company and the nature of its business.
 
 (c) The discrepancies noticed between the physical stocks and books
 stocks were not material and the valuation of stock has been done on
 the basis of physically verified quantity. Therefore shortage / excess
 automatically get adjusted and the same is properly dealt in the books
 of accounts.
 
 (iii) (a) The company has during the year granted unsecured loans to
 one party covered in the register maintained under section 301 of the
 Companies Act, 1956. The maximum amount involved during the year was
 Rs. 229.39 Crores and at the end of the year balance of loans granted
 to such parties was Rs. 122.07 Crores.
 
 (b) In our opinion the rate of interest, wherever charged, and the
 other terms and conditions of such loans are not prima-facie
 prejudicial to the interest of the company.
 
 (c) There are no stipulations for the repayment of principal and the
 interest, wherever charged. The outstanding interest receivable as at
 31st March, 2009 was Rs. 13.62 Crores.
 
 (d) The company has during the year taken unsecured loans from one
 party covered in the register maintained under section 301 of the
 Companies Act, 1956. The maximum amount involved during the year was
 Rs.199 Crores and the year balance of loans taken from such parties was
 Rs. Nil. In our opinion the rate of interest wherever charged and the
 other terms and conditions of such loans are not prima-facie
 prejudicial to the interest of the company.
 
 (iv) I n our opinion and according to the information and explanations
 given to us there is a reasonable internal control procedure
 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 which has scope for further improvement. We
 have however not come across any continuing failure to correct major
 weaknesses in internal control.
 
 (v) a) In our opinion and according to the information and explanations
 given to us the transactions that need to be entered into a register in
 pursuance of section 301 of the Act has been properly entered.
 
 b) All the transactions have been made at prices which are reasonable
 having regard to the prevailing market prices at the relevant time and
 the nature of services rendered by such parties.
 
 (vi) The Company has not accepted any deposits from the public during
 the year under review and consequently the directives issued by the
 Reserve Bank of India and the provisions of sections 58A and 58AA of
 the Act and the rules framed there under are not applicable. We are
 further informed that no orders have been passed by the Company Law
 Board in the case of the company requiring compliance.
 
 (vii) During the year the Company has taken steps to strengthen the
 Internal Audit System to make it commensurate with the size of the
 company and the nature of its business by appointing external firms of
 Chartered Accountants to conduct Internal Audit at the head office and
 the sites. In our opinion the same is presently commensurate with the
 size and nature of its business.
 
 (viii) According to the records produced and information given to us,
 the Central Government has not prescribed the maintenance of the cost
 records and accounts under section 209(1)(d) of the Companies Act,
 1956.
 
 (ix) (a) The company is generally regular in depositing Provident Fund,
 Employees State Insurance, Income Tax, Wealth Tax and Sales Tax dues
 with the appropriate authorities observed on a test check basis except
 for delays observed in deposit of TDS and PF at sites.
 
 (b) On the basis of the audit procedures followed, test checks of the
 transaction and the representation from the Management there are no
 arrears of outstanding statutory dues as at the last day of the
 financial year for a period of more than six months from the date they
 became payable except VAT Tax / Works Contract Tax of Rs. 1,437/-,
 Profession Tax of Rs. 32,169/-, ESIC of Rs. 54,506/- and Provident
 Fund/ Family Pension Fund of Rs.4,95,849/- and Rs. 7,29,166/- to be
 deposited with Investor Education and Protection Fund.
 
 (c) According to the information and explanation given to us, the
 following Tax / duty etc has not been deposited on account of dispute.
 
 Name of the     State     Nature of the dues             Amount
 Statute                                                  in Crores
 
 Sales Tax        A.P.     Sales in Transit (E-1)         0.13
                  A.P.     Reassessment matter            0.23
                  A.P.     Reassessment matter            0.19
                  A.P.     Tax levied on value of         2.10
                           material instead of purchase
                           price. Rule 6(3)(i)
                  A.P.     Tax levied on value of material1.64
                           instead of purchase price.
                           Rule 6(3)(i)
                  A.P.     Rejection of Form G             1.77
                  A.P.     Disallowance of Inter state     0.24
                           purchase
                  A.P.     Levy of Penalty                 1.89
 
  Sales Tax    Gujarat     Levy of Penalty                 0.01
               Gujarat     Levy of Penalty                 0.20
  Sales Tax    M.P.        Entry Tax                       0.01
  Sales Tax    Maharashtra Denial of deduction on Pre      0.79
                           cost component
                           Disallowance of WCT & BST       5.66
                           Lease Matter                    0.19
 Sales Tax     Orissa      Lab. and Service Charges        0.11
                           disallowed
                           Various disallowance            1.01
 Sales Tax    West Bengal  CTO wrongly estimated           0.64
                           Transfer Price
 Sales Tax    Jharkhand    Non Receipt of F Form           0.04
 Sales Tax    H.P.         Disallowance of deduction       0.74
 Sales Tax    Chattisgarh  Entry Tax                       0.05
                           Disallowance of Sales in Transit2.79
 Sales Tax    Kerala       Best Judgment Offer             1.70
 Sales Tax    Assam        Penalty u/s 10 of CST Act       0.10
 Service Tax  Gujarat -    River Development Matter        4.25
                           Sabarmati Job
 Service Tax  Gujarat -    River Development Matter        1.43
                           Sipat Job
 Service Tax  Gujarat -    Whether for commercial          5.72
            Surendranagar  purpose or not
 Service Tax  Bhilai       Demand Notice                   3.84
 Excise       Chennai      Disputed Demand                 0.03
 
 Custom Duty               Disputed Demand of NHAI Project 0.32
 
 
 
 Name of Statue       Period to which it      Forum where Dispute is
                      relates                 pending
 
 Sales Tax             1987-88               D.C. Appeals
                       1999-00               Tribunal
                       2001-02               H.C.
                       2002-03               Tribunal / H.C.
                       2003-04               Tribunal / H.C.
                       2000-01               D.C. Appeals
                       2005-07               H.C.
                       2005-07               H.C.
                       2001-02               Tribunal
                       2003-04               Tribunal
 Sales Tax             1992-93 & 1993-94     A.C. Appeals
 Sales Tax             1993-94 to 1997-98    Tribunal / A.C. Appeals
 Sales Tax             1993-94 to 1997-98    Jt. Appeals / Tribunal
                       1998-99 to 2001-02    D.C. Appeals / Tribunal
 Sales Tax             1992-93 to 1999-00    A.C. Appeals
                       1992-93 to 1999-00    A.C. Appeals
 Sales Tax             1994-95 to 2002-03    Tribunal
 Sales Tax             2001-02               C.T.
 Sales Tax             1999-00 to 2001-02    D.C. Appeals
 Sales Tax             1979-80 to 1998-99    Tribunal
                       2005-06               D.C. Appeals
 Sales Tax             1999-00 to 2000-01    D.C. Appeals
 Sales Tax             2006-07               D.C. Appeals
 Service Tax           2005-06               A.D.G / C.T.
 Service Tax           2005-06               A.D.G / C.T.
 Service Tax           2005-06               A.D.G.
 A.D.G.
 Excise                2006                  CESTAT Chennai
 Custom Duty           2001-02               S.C.
 
 (x) The Company does not have any accumulated losses and has not
 incurred cash losses in current year and the previous year.
 
 (xi) In our opinion and according to the information and explanation
 given to us by the Management, the Company has not defaulted in
 repayment of dues to a financial institution or bank or debenture
 holders.
 
 (xii) On the basis of the audit procedures followed, the test checks of
 the transactions during the course of our audit and the representations
 from the management, the Company has maintained adequate records for
 loans granted on the basis of security by way of pledge of shares.
 
 (xiii) The Company is not a nidhi/ mutual benefit fund/society and
 accordingly clause (xiii) is not applicable.
 
 (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 Companies (Auditors Report) Order,
 2003 (as amended) are not applicable to the Company.
 
 (xv) According to the information and explanations, the company has
 given corporate guarantee for loans taken by other companies from banks
 or financial institutions for which it has obtained counter guarantee
 from the other entities. The other terms and conditions are not
 prejudicial to the interest of the company.
 
 (xvi) The term loans taken during the year, have been applied for the
 purpose for which the loans were obtained.
 
 (xvii) According to the information and explanation given to us, on an
 over all examination of the Balance sheet of the company and the
 necessary representations from the management including those
 represented to the bankers and lenders in the Credit Monitoring
 Arrangement Statement, we report that no short term funds have been
 applied towards long term application.
 
 (xviii) The Company has not made preferential allotment during the year
 to parties and companies other than those covered in the Register
 maintained under section 301 of the Act. Accordingly clause (xviii) of
 the Companies (Auditors Report) Order, 2003 is not applicable.
 
 (xix) The Company has raised secured redeemable debentures aggregating
 to Rs. 100 Crores during the year the securities in respect of which
 has been created before the balance sheet date.
 
 (xx) The Company has not raised any money by public issues during the
 year and accordingly clause (xx) of Companies (Auditors Report) Order,
 2003 is not applicable.
 
 (xxi) Based on the audit procedures performed and the information and
 explanation given by the management we report that no fraud on or by
 the company has been noticed or reported during the year.
 
 
 
 
                                      For NATVARLAL VEPARI & CO.
                                          Chartered Accountants
 
                                                    N.Jayendran
                                                      (Partner)
                                                    M.No. 40441
 Mumbai , Dated : 9th July, 2009