1. We have audited the Balance Sheet of THE GWALIOR SUGAR COMPANY
 LIMITED as at 31st March, 2003 and the relative Profit & Loss Account
 for the year ended on that date, both of which we have signed under
 reference to this Report. 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.
 
 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 assurances 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.
 
 We report that:
 
 2. In our opinion, and to the best of our information and according to
 the explanations given to us, the Balance Sheet and Profit & Loss
 Account together with the notes thereon and attached thereto give in
 the prescribed manner the information required by the Companies Act,
 1956 and also give respectively, subject to the matters stated in
 paragraph 2.1 to 2.9 below and the related notes on accounts referred
 to therein, with consequential effects on the Company's Loss and
 relevant items on the Balance Sheet, a true and fair view of the state
 of the Company's affairs as at 31st March, 2003 and its Loss for the
 year ended on that date.
 
 2.1 Note 6 on Schedule XXV regarding the Company's title to the
 purchased land pending mutation under Madhya Pradesh Ceiling on
 Agricultural Holding Act, 1960 and the accounting for the compensation
 for a part thereof under Land Acquisition Act, 1894.
 
 2.2 Note 7 on Schedule XXV regarding benefits amounting to Rs. 113.32
 Lacs provisionally availed under the Central Government Incentive
 Scheme for expansion and modernization accounted for as capital receipt
 and the same not having been considered for the purpose of computation
 of Income Tax liability.
 
 2.3 Note 8 on Schedule XXV regarding the Company's title to a flat
 pending execution of the agreement.
 
 2.4 Note 9 on Schedule XXV regarding non provision of Purchase Tax
 amounting to Rs.74.91 Lacs.
 
 2.5 Note 10 on Schedule XXV read with Accounting Policy No.4 on
 Schedule XXIV regarding liability for gratuity.
 
 2.6 Note 11 on Schedule XXV regarding non redemption of Cumulative
 Preference Share Capital amounting to Rs.5,00,000/- which became due
 for redemption on 15th June, 1993.
 
 2.7 Note 12 on Schedule XXV regarding non-redemption of Redeemable
 Cumulative Preference Shares Capital amounting to Rs.6,75,000/- which
 became due for redemption on 15th June, 1998.
 
 2.8 Accounting Policy 3 (ix) of Schedule XXIV regarding valuation of
 land trading stock at fair market value instead of at cost or net
 realizable value which ever is less resulting in a lower loss for the
 year and higher closing stock and net assets to the extent quantified
 in the Note 13 of Schedule XXV.
 
 2.9 The Company has sold certain land amounting to Rs. 239 lacs during
 the year however; it has not made any payment to financial institutions
 though 50% of the amount were payable to them as stipulated in their
 approval.
 
 3. Subject to the matters stated in paragraphs 2.1, to 2.9 above, we
 have obtained all the information and explanations which, to the best
 of our knowledge and belief, were necessary for our audit. In our
 opinion, proper books of account have been kept as required by the
 Companies Act, 1956 so far as appears from our examination of the books
 and the above mentioned accounts are in agreement therewith.
 
 4. In our opinion, subject to matter stated in paragraph 2.1 to 2.9
 above, the Profit & Loss Account and Balance Sheet comply with the
 accounting standards referred to in section 211(3C) of the Companies
 Act, 1956, to the extent possible.
 
 5. As per common loan agreement with industrial Finance Corporation of
 India and other financial institutions, the company can not declare and
 pay any dividend to its shareholders unless it has paid all the dues to
 the landers. Further, as per note 1(v) of Schedule XXV the Company has
 arrears of dividends payable on Redeemable Cumulative preference Shares
 and Irredeemable Cumulative Preference Shares, due for redemption on
 15.6.93 & 15.6.98 respectively subject to decision of Hon'ble High
 Court of Madhya Pradesh, Gwalior Bench and Company Law Board, Western
 Region, Mumbai. The Company has also taken a legal opinion that since
 the dividend could not be paid due to above reasons, no offence deemed
 to have been committed. On the basis of legal opinion taken by the
 company and representation given to us, we report that no Director is
 disqualified under Clause (g) of Section 274 of Companies Act.
 
 6. As required by the Manufacturing and Other Companies (Auditor's
 Report) Order, 1988 is issued by the Central Government and on the
 basis of such checks as we considered appropriate and according to the
 information and explanations given to us, we further report that:
 
 (i) The Company has maintained proper records to show full particulars
 including quantitative details and situation of its fixed assets. The
 fixed assets of the Company have been physically verified during the
 year by the management and no significant discrepancy between the book
 records and the physical inventory has been noticed.
 
 (ii) None of the Fixed assets has been revalued during the year.
 
 (iii) The stock of sugar, sugar-in-process and stores except for lime
 stone, coal, sulphur etc. which as informed by the management was not
 possible due to practical difficulties and spare parts of the Company
 at all its locations have been physically verified during the year/at
 the year end.
 
 (iv) In our opinion, the procedures of physical verification of stocks
 followed by the management are reasonable and adequate in relation to
 the size of the Company and nature of its business.
 
 (v) The discrepancies between the physical stock and the book stock
 which have been properly dealt with were not material.
 
 (vi) In our opinion, except the valuation of land trading stock at Net
 Realizable Value/Fair Market Value basis (refer Accounting Policy No.3
 on Schedule XXIV), the valuation of sugar-in-process, free sale sugar.
 Levy Sugar Farm produce, standing crop-Farm Forestry, and Stores and
 Spare parts has been fair and proper in accordance with normally
 accepted accounting principles and is on the same basis as in the
 preceding year.
 
 (vii) The Company has taken unsecured loans from promoters and
 associates, the rate of interest and the terms and conditions on which
 loans have been taken from associates are prima facie not prejudicial
 to the interest of the Company.
 
 (viii) The Company has not granted any loans, secured or unsecured to
 companies, firms or other parties listed in the Register maintained
 under Section 301 and/or to companies under the same management as
 defined under Sub-Section (1B) of Section 370 of the Companies Act,
 1956.
 
 (ix) No loans have been given by the Company.
 
 (x) In our opinion, internal control procedures of the Company relating
 to the significant purchases of stores, raw material including
 components, plant and machinery, equipment and other similar assets and
 for the sale of goods are commensurate with the size and nature of the
 business of the Company.
 
 (xi) In our opinion, the prices paid for purchases during the year of
 stores, raw materials or components in excess of Rs.50,000/- or more in
 value from firms, companies or other parties in which directors are
 interested, as listed in the Register maintained under section 301, are
 reasonable as compared to the prices of similar items supplied by other
 parties considering the quality of goods purchased. The Company has not
 sold any goods, materials and services to any party listed in the
 Register maintained under Section 301 of the Companies Act, 1956.
 
 (xii) Unserviceable or damaged stores are determined and adjusted in
 the accounts during the year.
 
 (xiii) The Company has not accepted any deposit from public.
 
 (xiv) In our opinion, reasonable records has been maintained by the
 Company for the sale and disposal of realizable by-products and scrap
 where applicable and significant.
 
 (xv) In our opinion, the Company's present internal audit system is
 commensurate with its size and nature of its business.
 
 (xvi) On the basis of the records produced, we are of the opinion that,
 prima facie, the cost records and accounts prescribed by the Central
 Government under Section 209(1)(d) of the Companies Act, 1956 have been
 maintained. However, we have not carried out any detailed examination
 of such accounts and records.
 
 (xvii) According to the records of the Company, Provident Fund dues
 have not been regularly deposited with the appropriate authority and
 trust. The Company's default towards non payment of Provident Fund is
 of Rs. 104.49 Lacs. As informed to us by the management, the provisions
 of the Employees's State Insurance Act, 1948 are not applicable to the
 Company.
 
 (xviii) According to the records of the Company, there was no amount
 due at March 31, 2003 in respect of undisputed, Sales Tax, Customs Duty
 and Excise Duty which were due for more than six months from the date
 they became payable. However, the Company has not deposited tax
 deducted at source amounting to Rs. 16.20 Lacs.
 
 (xix) During the course of our examination of the books of accounts
 carried out in accordance with the generally accepted auditing
 practices, we have not come across any personal expenses other than
 those payable under contractual obligation or in accordance with
 generally accepted business practices which have been charged to Profit
 and Loss Account, nor have we been informed of any such case by the
 management.
 
 (xx) In view of our qualification in 2.8 above had the company have
 adopted Accounting Standard 2 issued by Institute of Chartered
 Accountants of India which is made mandatory for accounting period
 started on and after 1st April 1999, it would have been a Sick
 Industrial Companies within the meaning of clause (O) of section (i) of
 the seek industrial companies (Special Provisions) Act, 1985.
 
 (xxi) In respect of trading activities, there were no damaged goods in
 the possession of the Company as at 31st March, 2003.
 
                                                   For VIDYARTHI & SONS
                                                  CHARTERED ACCOUNTANTS
 
                                                      AMIT S. VIDYARTHI
                                                                PARTNER
 
 L-3,GANDHI NAGAR, GWALIOR
 DATED : 2nd December, 2003