1.  We have audited the attached Balance Sheet of Hindustan Motors
 Limited (the Company) as at March 31, 2011 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) issued by the Central Government of India in terms of
 sub-section (4A) of Section 227 of the Companies Act, 1956 (the Order),
 we enclose in the Annexure a statement on the matters specified in
 paragraphs 4 and 5 of the said Order.
 
 4.  Without qualifying our opinion, attention is drawn to Note 3 (f) in
 Schedule 22 regarding the demand for right of recompense by the Lenders
 under Corporate Debt Restructuring scheme. As stated in the said Note,
 in view of the Companys request for reduction in the amount of
 recompense of interest which the Lenders have agreed to consider, no
 provision against the balance amount of recompense payable (net of Rs.
 1500 lacs already paid to the Lenders), if any, is considered necessary
 by the management.
 
 5.  Further to our comments in the Annexure referred to above and read
 together with our comments in paragraph 4 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 such
 books. The Balance Sheet, Profit and Loss Account and Cash Flow
 Statement referred to in this report are in agreement with the books of
 account as submitted to us.
 
 iii. 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.
 
 iv. On the basis of the written representations received from the
 directors, as on March 31, 2011, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 March 31, 2011 from being appointed as a director in terms of clause
 (g) of sub-section (1) of Section 274 of the Companies Act, 1956.
 
 v. In our opinion and to the best of our information and according to
 the explanations given to us, the said statements of account, read
 together with the Notes appearing on Schedule 22, 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, 2011;
 
 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 to the AuditorsReport
 
 (Referred to in our Report of even date to the members of Hindustan
 Motors Limited as at and for the year ended March 31, 2011)
 
 (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 such
 verification in a phased manner to cover all the items over a period of
 three years which, in our opinion, is reasonable having regard to the
 size of the Company and the nature of its assets. In respect of fixed
 assets lying with third parties, the management has a process of
 obtaining periodic confirmations. As informed, no material
 discrepancies were noticed on such verification during the year.
 
 (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. In respect of the material
 lying with third parties, the management has a process of periodic
 confirmation and reconciliation with the third parties.
 
 (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.
 Therefore, the provisions of clauses 4 (iii)(a) to (d) of the Companies
 (Auditors Report) Order, 2003 (as amended) are not applicable.
 
 (e) The Company has taken loans from three companies covered in the
 register maintained under Section 301 of the Companies Act, 1956. The
 maximum amount involved during the year was Rs. 1500 lacs and the
 year-end balance of loans taken from such parties was Rs. 1500 lacs.
 
 (f) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 such loans are not prima facie prejudicial to the interest of the
 Company.
 
 (g) The loans taken are re-payable on demand. As informed, the lenders
 have not demanded repayment of any such loans during the year and thus,
 there has been no default on the part of the Company. The payment of
 interest has been regular.
 
 (iv) In our opinion and according to the information and explanations
 given to us, and having regard to the explanation that substantial
 portion of the items purchased are of a special nature and alternate
 sources do not exist for obtaining quotations thereof, 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, we have not observed any major weakness or
 continuing failure to correct any major weakness in the internal
 control system of the Company in respect of these areas.
 
 (v) (a) According to the information and explanations provided by the
 management, we are of the opinion that the particulars of contracts or
 arrangements referred to in Section 301 of the Act that need to be
 entered into the register maintained under Section 301 have been so
 entered.
 
 (b) In respect of transactions made in pursuance of such contracts or
 arrangements and exceeding the value of Rupees five lacs entered into
 during the financial year, because of the unique and specialized nature
 of the items involved, no comparison of prices paid can be made with
 prevailing market prices at the relevant time.
 
 (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(l)(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, employees state insurance, service tax,
 cess, income-tax, wealth-tax, customs duty and other material statutory
 dues have generally been regularly deposited with the appropriate
 authorities except for sales tax and excise duty where there have been
 delays.
 
 Further, since the Central Government has till date not prescribed the
 amount of cess payable under Section 441 A of the Companies Act, 1956,
 we are not in a position to comment upon the regularity or otherwise of
 the Company in depositing the same.
 
 (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,
 except for sales tax of Rs. 277.95 lacs (since paid).
 
 (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      Nature of dues                      Amount
 Statute                                      (Rs.  in lacs)
 
 The Central      Dispute on Account of              2841.51
 Excise Act,      Classification, Cenvat Credit,
 1944             Assessable Value, 
                  Differential Excise
                  Duty, Input Service Tax Credit
 
 The Central      Stock Transfer, Non-submission of    38.39
 Sales Tax Act,   C/D Forms etc.
 1956
 
 Tamil Nadu       Additional Sales tax etc.           308.22 
 Sales Tax, 1959
 
 West Bengal      Non Receipt of Sales tax form         0.37
 Sales Tax Act,   Interest, Penalty, Post Return 
 1994             Adjustment etc
 
 West Bengal      Disallowance of VAT Credit           57.24
 Value Added 
 Tax Act, 2003
 
 The Customs      Dispute on account of 
                  Classification,                      17.75
 Act, 1956        Duty on inclusion of technical
                  Know-how fees on imported goods, 
                  import of Engines Short Levy etc.
 
 M.P.             Exemption Notification denied by      8.58
 Commercial       Commissioner Appeal 
 Tax Act, 1994
 
 Nature of the    Period to which      Forum where dispute is pending 
 Statue           amount relates 
 
 The Central      1984-2006            CESTAT, High Court/
 Excise Act                            Commissioner (Appeals)/ 
 1944                                  Commissioner/Assistant/ 
                                       Commissioner of Central Excise/ 
                                       CESTAT, Joint Commissioner
 
 The Central      1995-2008            Additional Commissioner of
 Sales Tax Act,                        Commercial Taxes/High Court/ 
 1956                                  W.B. Commercial Tax Appellate 
                                       & Revision Board/Deputy 
                                       Commissioner
 
 Tamil Nadu       1989-1999            Deputy Commissioner (Appeals)
 Sales Tax, 1959                       Tribunal 
 
 West Bengal      2003-2004            W.B. Commercial Tax Appellate
 Sales Tax Act,                        & Revision Board
 1994
 
 West Bengal      2007-2008            Additional Commissioner
 Value Added
 Tax Act,2003
 
 The Customs      1990-2006            Commissioner/Assistant
 Act,1956                              Commissioner Appeals/Tribunal
 
 M.P.             2002-2003            Commissioner Appeal of
 Commercial                            Commercial Tax
 Tax Act, 1994
 
 (x) The Companys accumulated losses at the end of the financial year
 are more than fifty percent of its net worth and the Company has not
 incurred cash loss during the year. In the immediately preceding
 financial year, the Company had incurred cash loss.
 
 (xi) Based on our audit procedures and as per the information and
 explanations given by the management, the
 
 Company has overdrawn cash credit borrowings and delayed in repayment
 of a short term loan from bank during the year, the details whereof are
 as follows:
 
 Period of Default      Amount (Rs. in lacs)
 
 Less than 30 days      2773.56
 
 30 to 90 days          3672.31
 
 The Company has not defaulted in repayment of dues to a financial
 institution and has no outstanding dues in respect of debentures.
 
 (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.
 
 (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.
 
 (xv) According to the information and explanations given to us, the
 Company has not given any guarantee for loans taken by others from
 banks or financial institutions.
 
 (xvi) Based on 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
 overall examination of the balance sheet of the Company, we report that
 the Company has used short term funds amounting to Rs. 11600 lacs
 approximately as at the close of the year (previous year Rs.  8400
 lacs) for financing the operating losses of the Company
 
 (xviii) The Company has not made any preferential allotment of shares
 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 any money through a 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.
                                                    Regn. No, 301003E 
                                                Chartered Accountants
 
                                                      Per Raj Agrawal
                                                              Partner 
                                                 Membership No, 82028
 
 Place: New Delhi 
 Date : May 16, 2011