1.  We have audited the attached Balance Sheet of Gammon India Limited
 (the Company) as at 31st March 2011 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, Kenya, Bhutan &
 Italy audited by branch auditors. 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 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.  Without qualifying our report we invite attention to:
 
 a.  Note no. 13 to the notes to accounts relating to recoverability of
 an amount of Rs. 94.54 crores under sundry debtors in respect of
 recognition of contract revenue in previous years where 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. The recoverability is dependent upon the final outcome of the
 appeals getting resolved in favour of the company.
 
 b.  Note no. 29C 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.
 
 c.  Note no. 37(b) to the notes to accounts relating to recognition of
 variation claims and revenue in respect of works carried out by the
 joint venture in Oman, where the final outcome of the project is
 dependent on the resolution of the disputes and settlement of the
 claims by the client.
 
 4.  As required by the Companies (Auditor''s 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.
 
 5.  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.
 
 (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 2011 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 said accounts and the notes thereon
 give the information required by the Companies Act, 1956 in the manner
 so require and give a true and fair view in conformity with the
 accounting principles generally accepted in India.
 
 (a) in the case of Balance Sheet of the State of Affairs of the Company
 as at 31st March 2011 and
 
 (b) in the case of Profit and Loss Account of the profit for the year
 ended on 31st March 2011.
 
 (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 5 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 programme, 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,
 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 2
 party covered in the register maintained under Section 301 of the
 Companies Act, 1956. The maximum amount involved during the year was
 Rs. 160.92 crores and at the end of the year balance of loans granted
 to such parties was Rs. 160.92 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 2011 was Rs. 23.79 crores.
 
 (d) The Company has not taken any loans from parties covered in the
 register maintained under Section 301 of the Companies Act, 1956.
 
 (iv) In 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 have been so 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) In our opinion the internal audit system is presently
 commensurate with the size and nature of its business.
 
 (viii) According to the information and explanations given to us, the
 Central Government has prescribed the maintenance of cost records under
 Section 209 (1) (d) of the Companies Act, 1956 with respect to the
 Branch''s Conductor Division and that the Branch has maintained such
 accounts and records. No examination of such records has been carried
 out by us.
 
 (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 many cases of delays observed in deposit of TDS, service tax 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 Rs. 0.19 crores 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   State   Nature of the dues  Amount    Period to
                                                 which it  Forum where
 the 
 Statute                                   in 
                                       Crores    relates   Dispute is 
                                                           pending
 
 Sales 
 Tax       A.P.    Sales in Transit 
                   (E-1)                 0.13   1987-88    D.C. Appeals
 
           A.P.    Reassessment matter   0.23   1999-00    Tribunal
 
           A.P.    Reassessment matter   0.19   2001-02    H.C.
 
           A.P.    Tax levied on value
                   of material           2.10   2002-03    Tribunal/H.C.
                   instead of purchase 
                   price. Rule 6(3)(i)
 
           A.P.    Tax levied on value 
                   of material           1.64   2003-04    Tribunal/H.C.
                   instead of purchase
                   price. Rule 6(3)(i)
 
           A.P.    Disallowance of 
                   Inter state           0.23   2005-07    H.C.
                   purchase
 
           A.P.    Levy of Penalty       1.89   2005-07    H.C.
 
 Sales Tax Gujarat Levy of Penalty       0.01   2001-02    J. C. Appeals
 
           Gujarat Levy of Penalty       0.22   2003-04    J. C. Appeals
 
           Gujarat Disallowance of 
                   TDS Credit &          0.11   2004-05    Asst. 
                                                           Commisioner
                   Penalty charged of 
                   commercial tax
 
 Sales Tax M.P.    Entry Tax             0.01   1992-93 &  A.C. Appeals
                                                1993-94
 
                   Entry Tax             0.10   2009-10    D.C. Appeals
 
 Sales 
 Tax       Mahara
           -shtra  Denial of deduction 
                   on Pre cost           0.79   1993-94 to 
                                                1997-98    Tribunal/A.C.
                   component                               Appeals
 
                   Disallowance of 
                   WCT & BST             5.84   2000 to 
                                                2002       Jt. Appeals/ 
                                                           Tribunal
 
                   Lease Matter          0.19   1998-99 to 
                                                2001-02    Bombay High 
                                                           Court /
                                                           Jt. Appeals
 
                   Lease Matter          0.10   2005-06    Jt. Appeals II
 
 Sales 
 Tax      Orissa   Lab. and Service 
                   Charges               0.11   1992-93 to
                                                1999-00    A.C. Appeals
                   disallowed
 
                   various disallowance  0.88   2001-04    A.C. Appeals
 
 Sales 
 Tax      West 
          Bengal  CTO wrongly estimated 
                   Transfer              0.64   1994-95 to 
                                                2002-03    Tribunal
                   Price
 
                   Arbitary demand       4.98   2007-08    Tribunal
 
 Sales 
 Tax     Jharkhand Non Receipt of F 
                   Form                  0.04   2001-02    C.T.
 
 Sales 
 Tax     H.P.      Disallowance of 
                   deduction             1.82   2006-09    High Court
 
 Sales 
 Tax     Chattis
         -garh     Entry Tax             0.05   1979-80 to
                                                1998-99    Tribunal
 
 Sales 
 Tax     Kerala    Best Judgment Offer   0.45   1999-00 to
                                                2000-01    D.C. Appeals
 
 Sales 
 Tax     Assam     Arbitary Demand       1.12   2006-07    Appeal
 
 Service 
 Tax     Gujarat   River Development 
                   Matter                5.65   2005 to 
                                                2010       A.D.G / C.T.
 
 Service 
 Tax     Gujarat   Show Cause cum 
                   demand notice         1.48   2005-10    A.D.G / C.T.
 
 Service 
 Tax     Gujarat   Whether for 
                   commercial purpose    5.72   2005-07    A.D.G.
                   or not
 
 Service 
 Tax     Bhilai    Show Cause cum 
                   demand notice         1.00   2006-2010  A.D.G. / C.T
 
 Service 
 Tax     Karnataka Non Inclusion of 
                   value of Material     0.25   2006-07    DG – CEI
 
 Service 
 Tax     Karnataka Non Inclusion of 
                   value of Material     2.57   2006-09    DG – CEI
 
 Service 
 Tax     Imports   Show Cause cum 
                   demand notice         1.92              A.D.G-CET
 
 Excise  Chennai   Disputed Demand       0.03   2006       CESTAT Chennai
 
 Custom            Disputed Demand of 
                   NHAI                  0.32   2001-02    S.C.
 Duty              Project
 
 Sales 
 Tax     Rajasthan Dispute in Increase 
                   in EC fees,           0.81   2005-06 to 
                                                2007-08    DC – Appeals
                   Interest
 
 (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/societies 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 (Auditor''s 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. The other terms and conditions are not
 prima-facie 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, we report
 that no short term funds have been applied towards long term purposes.
 
 (xviii) The Company has made allotment of equity shares against equity
 warrants allotted in the previous year to parties and Companies covered
 in the Register maintained under Section 301 of the Act. The equity
 warrants were priced at a price prescribed in SEBI Issue of Capital and
 Disclosure Regulations 2009 and therefore the same are not prejudicial
 to the interests of the Company.
 
 (xix) The Company has raised secured redeemable debentures aggregating
 to Rs. 100 crores during the year the securities in respect of which
 have 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
 
                                      Firm Registration No. 106971W
 
                                                       N. Jayendran
 
                                                            Partner
 
                                                       M. No. 40441
 
 Mumbai, Dated: 12th August, 2011