We have audited the attached Balance Sheet of HITKARI CHINA LIMITED as
 at 31st March, 2001 and the Profit & Loss Account for the year ended on
 that date annexed thereto and report that:-
 
 (a) 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.
 
 (b) 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.
 
 (c) The Balance Sheet and Profit & Loss Account referred to in this
 report are in agreement with the books of account.
 
 (d) In our opinion the Balance Sheet and Profit & Loss Account complies
 with the Accounting Standards referred to in section 211 (3C) of the
 Companies Act, 1956.
 
 (e) On the basis of information and explanations given to us and
 representations obtained by the Company, there are no Directors of the
 Company who are disqualified under Section 274 (I) (g) of the Companies
 Act, 1956 from being appointed as Directors.
 
 (f) In our opinion and to the best of our information and according to
 the explanations given to us, the said Balance Sheet and Profit & Loss
 Account read together with the notes thereon in Schedule `K' annexed to
 the Balance Sheet i.e., (a) Note No. (7) regarding non-confirmation and
 reconciliation of accounts, (b) Note No. (8) as to non provision and
 non quantification of the interest and (c) Note Nos. (9) and (10) as to
 non provision and non quantification of various liabilities upto 31st
 March, 2001 and their effect on loss and reserves of the company and
 ail other notes on accounts and schedules annexed thereto give the
 information required by the Companies Act, 1956 in the manner so
 required and give a true and fair view:-
 
 i) insofar as it relates to the Balance Sheet, of the state of affairs
 of the Company as at 31st March, 2001; and
 
 ii) insofar as it relates to the Profit & Loss account of the loss of
 the company for the year ended on that date.
 
 As required by the Manufacturing and Other Companies (Auditors' Report)
 Order, 1988 issued by the Company Law Board in terms of section 227
 (4A) of the Companies Act, 1956 and on the basis of such checks as we
 considered appropriate, we further report that:-
 
 1. The company has maintained proper records showing full particulars
 including quantitative details and situation of fixed assets. All the
 assets have been physically verified by the management at the end of
 the year which in our opinion is reasonable having regard to the size
 of the company acid the nature of its assets. No material discrepancies
 were noticed on verification.
 
 2. None of the fixed assets have been revalued during the year.
 
 3. The stocks of raw materials, semi finished & finished goods,
 stores, saggars, moulds, fuels and packing materials have been
 physically verified by the management at the end of the year. In our
 opinion, the frequency of verification is reasonable.
 
 4. The procedures of physical verification of stocks followed by the
 management are reasonable and adequate in relation to the size of the
 company arid the nature of its business.
 
 5. The discrepancies noticed on verification between the physical
 stocks and the book records were not material.
 
 6. On the basis of our examination of stock records, we are of the
 opinion that the valuation of stocks is fair and proper in accordance
 with the normally accepted accounting principles and is on the same
 basis as in the the preceeding year.
 
 7. The company has taken interest free loans from companies, firms or
 other parties covered under section 301 and from a company under the
 same management as defined cinder section 370 (1 B) of the Companies
 Act, 1956 and the terms and conditions are prima-facie not prejudicial
 to the interest of the company.
 
 8. The company has not granted loans, secured or unsecured to
 companies, firms or other parties covered under section 301 or to
 company under the same management as defined under section 370 (1 B) of
 the Companies Act, 1956.
 
 9. The company has not given loans or advances in the nature of loans
 with stipulation of instalments in respect of the repayment of the same
 and interest thereon. However, the company has given interest free
 advances to employees and reasonable steps have been or are being taken
 for recovey.
 
 10. In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with the size of the company and the nature of its
 business with regard to purchase of materials, plant and machinery,
 equipments and other assets and with regard to the sale of goods.
 
 11. According to the information and explanations given to us, no
 transactions of purchase of goods and materials were made in pursuance
 of contracts or arrangements covered under section 301 of the Companies
 Act, 1956 and aggregating during the year to Rs. 50,000.00 or more in
 respect of each party. However, sales have been made as per management,
 at prevailing market rates.
 
 12. As explained to us, the company has a regular procedure for the
 determination of unserviceable or damaged stores, raw materials, semi
 finished and finished goods, saggars and moulds etc. and provision has
 been made in the accounts for the loss which has arisen.
 
 13. In our opinion and according to the information and explanations
 given to us the company has not accepted any deposit covered under
 section 58A of the Companies Act, 1956 and the rules framed thereunder.
 
 
 14. The company has neither realisable scrap nor by-product.
 
 15. In our opinion the scope of rote-real audit reeds to be
 strengthened and extended in order to be commensurate with the size of
 the company & nature of its business.
 
 16. The central Government has not prescribed the maintenance of cost
 records under section 209 (1) (d) of the Companies Act, 1956 for the
 items dealt with by the company.
 
 17. The company has not been regular in depositing dues under the
 Provident Fund & Employees State Insurance Schemes and the arrears as
 on 31st March, 2001 have not been quantified.
 
 18. According to the information and explanations given to us, no
 undisputed amounts payable in respect of Income Tax, Wealth-tax,
 Customs duty and Excise duty (except for Rs. 31.90 lacs being
 undisputed Sales Tax not paid but provided for) were outstanding as at
 31st March, 2001 for a period of more than six months from the date the
 same became payable.
 
 19. According to the information and explanations given to us, no
 personal expenses of employees or directors have been charged to
 revenue account, other than those payable under contractual obligations
 or in accordance with generally accepted business practice.
 
 20. The company is a sick industrial company within the meaning of
 clause (o) of sub-section (1) of section 3 of the Sick Industrial
 companies (Special Provisions) Act, 1985.
 
 21. We may mention that a Partner of our firm is a relative of a
 Director of the Company though the said Director has no substantial
 interest in the Company