1.  We have audited the attached Balance Sheet of IL&FS Engineering and
 Construction Company 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 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.  As required by the Companies (Auditor’s 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, we enclose
 in the Annexure a statement on the matters specified in paragraphs 4
 and 5 of the said Order.
 
 4.  The accompanying financial statements include the Company’s share
 of profit (net) aggregating to Rs. 2.18 Crores (Losses for the year
 ended March 31, 2010 – Rs. 1.80 Crores) from Integrated Joint Ventures
 in which the Company is a co- venturer. The financial statements of
 these Joint Venture entities as at and for the year ended March 31,
 2011 were audited by other auditors whose reports have been furnished
 to us. We have relied solely on the audit reports of other auditors in
 this regard.
 
 5.  Without qualifying our opinion, we invite your attention to Note
 no. 24 of Schedule 25 to the financial statements pertaining to
 remuneration paid by the Company to its directors, which was in excess
 of the limits specified under Schedule XIII of the Companies Act, 1956
 by Rs. 1.87 Crores, Rs. 0.16 Crore and Rs. 0.48 Crore for the year
 ended March 31, 2009, March 31, 2010 and March 31, 2011 respectively.
 The approval in respect of the aforesaid is awaited from the central
 government.
 
 6.  As detailed in Note nos. 30(a)(i) and 30(a)(iii) of Schedule 25 to
 the financial statements:
 
 a) One of the Integrated Joint Ventures, where the Company is a
 co-venturer, namely Maytas SNC (JV), has not prepared its financial
 statements for the year ended March 31, 2011.
 
 b) The accompanying financial statements include the Company’s share of
 loss of Rs. 0.11 Crore from an Integrated Joint Venture, in which the
 Company is a co- venturer based on its unaudited financial statements.
 
 The accompanying financial statements do not include the consequential
 impacts that may have been required had the audited financial
 statements of the joint ventures been made available.
 
 7.  As at March 31, 2011, the Company had certain Inter Corporate
 Deposits (ICDs) outstanding of Rs. 343.78 Crores (March 31, 2010 – Rs.
 391.64 Crores). Management has represented that the Company has taken
 steps to recover the amounts and is of the opinion that all deposits
 are fully recoverable. Accordingly no adjustments have been made to the
 accompanying financial statements in respect of the same.  Pending
 final outcome of the recovery process, we are unable to comment on the
 extent of recoverability of the aforesaid amounts. Our audit report on
 the financial statements for the year ended March 31, 2010 was also
 qualified in respect of the aforesaid matter.
 
 8.  Further to our comments in the Annexure referred to in paragraph 3
 above, we report that:
 
 i. Except as discussed in paragraph 6 and 7 above, 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
 those books;
 
 iii the Balance Sheet, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 iv. Except as discussed in paragraph 6 and 7 above, 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;
 
 v. 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;
 
 vi. In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts give the information
 required by the Companies Act, 1956, in the manner so required, and
 except to the extent of adjustments, if any, that may have been
 required on account of matters discussed in paragraphs 6 and 7 above,
 the cumulative effect of which on the financial statements is currently
 not ascertainable, the said accounts 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 Auditors'' Report
 
 Annexure referred to in paragraph 3 of our report of even date
 
 Re: IL&FS Engineering and Construction Company Limited (''the Company'')
 
 (i) (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 (b) The Company has conducted physical verification of assets as per
 the regular programme of verification, which in our opinion, is
 reasonable having regard to the size of the Company and nature of its
 assets. Asinformed, no material discrepancies were noticed on such
 verification.
 
 (c) There was no substantial disposal of fixed assets during the year.
 
 (ii) (a) Management has conducted physical verification of inventory at
 reasonable intervals during the year.
 
 (b) The procedures of physical verification of inventory followed by
 Management are reasonable and adequate in relation to the size of the
 Company and the nature of its business.
 
 (c) The Company is maintaining proper records of inventory in so far as
 such records were examined by us and no material discrepancies were
 noticed on physical verification which has been properly dealt with in
 the books of account.
 
 (iii) (a) The Company has granted unsecured loans to a company covered
 in the register maintained under section 301 of the Companies Act,
 1956. The maximum amount involved during the year was Rs. 47.87 Crores,
 which was outstanding since previous year and the aggregate balance of
 loans as at March 31,2011 was Rs. 47.87 Crores. However as at March 31,
 2011, the company is not covered inthe register maintained under
 section 301 of the Companies Act, 1956.
 
 (b) 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.
 
 (c) In respect of loans granted, repayment of the principal amount was
 not as stipulated and payment of interest has also not been regular.
 
 (d) Based on our audit procedures and the information and explanation
 made available to us, in case where overdue amount is more than rupees
 one lakh, reasonable steps have been taken by the Company for recovery
 of the principal and interest.
 
 (e) As informed, the Company has not taken any loans, secured or
 unsecured from companies, firms or other
 
 parties covered in the register maintained under section 301 of the
 Companies Act, 1956. Accordingly, the provisions of clauses (iii)(f)
 and (iii)(g) of the Companies (Auditor''s Report) Order, 2003 (as
 amended) are not applicable to the Company.
 
 (iv) In our opinion and according to the information and explanations
 given to us, 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, 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 majorweakness in
 internal control system of the company in respect of these areas.
 
 (v) According to the information and explanations given to us, we are
 of the opinion that there are no contracts or arrangements entered
 during the year which are referred to in section 301 of the Companies
 Act, 1956 that need to be entered in the register maintained under
 Section 301 of the Companies Act, 1956. Accordingly, the provisions of
 clause (v) (b) of the Companies (Auditor''s Report) Order, 2003 (as
 amended) are not applicable to the Company.
 
 (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) To the best of our knowledge and as explained, the Central
 Government has not prescribed maintenance of cost records under clause
 (d) of sub-section (1) of section 209 of the Companies Act, 1956 for
 the products of the Company.
 
 (ix) (a) Undisputed statutory dues including provident fund,
 investoreducationand protection fund, employees'' state insurance,
 income-tax, sales-tax, wealth-tax, service tax, customs duty, excise
 duty, cess and other material statutory dues have not been regularly
 deposited with the appropriate authorities though the delays in deposit
 have notbeen serious.
 
 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 material statutory dues were outstanding, at the year end, for a
 period of more than six months from the date they became payable.
 
 (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 Statute               Nature of            Amount
                                   dues               (Rs.crores)
 
 AP Valued Added Tax, 2005         Sales Tax and        0.65
                                   Penalty
 
 AP Valued Added Tax, 2005         Penalty              1.44
 
 AP Valued Added Tax, 2005         Sales Tax           27.06
 
 Assam Value Added Tax, 2003       Sales Tax            0.05
 
 UP Trade Tax Act, 1948            Sales Tax            6.37
 
 Central SalesTaxAct, 1956         Penalty for          0.50
 Sales Tax
 
 Central Sales Tax Act, 1956       Penalty for          0.70
 Sales Tax
 
 Finance Act, 1994                 Service Tax          9.70
 
 Finance Act, 1994                 Penalty on           0.28
                                   Service Tax
 
 
 
 Name of the Statute      Period to which       Forum where dispute
                          the amount            is pending
                          relates
 
 AP Valued Added 
 Tax, 2005                2005-06,              Sales Tax Appellate
 
                          2006-07 and 2007-08   Tribunal, Hyderabad
 
 AP Valued Added 
 Tax, 2005                2007-08               Appellate Deputy
                                                Commissioner,
                                                Hyderabad
 
 AP Valued Added 
 Tax, 2005               2007-08               High Court of
                                               Andhra Pradesh
 
 Assam Value Added 
 Tax, 2003               2006-07               Deputy Commissioner
                                               of Taxes and Appeals,
                                               Guwahati
 
 UP Trade Tax Act, 1948  2007-08               Joint Commissioner of
                                               Commercial Taxes,
                                               Lucknow
 
 Central Sales 
 Tax Act, 1956           2002-03               Sales Tax Appellate
                         2003-04               Tribunal, Hyderabad
 
 Central Sales 
 Tax Act, 1956           2007-08              Apellate Deputy
                                              Commissioner,
                                              Chattisgarh
 
 Finance Act, 1994       2007-08 and 2008-09  Office of Commissioner
                                              of Customs &
                                              Central Excise,
                                              Hyderabad
 
 Finance Act, 1994       2006-07 and          The Customs, Excise
                         2007-08              and Service Tax
                                              Appellate Tribunal,
                                              Bangalore
 
 (x) Without considering the impact of our observations in paragraphs 6
 and 7 of the main Audit Report, the effects of which are presently
 unascertainable, the Company''s accumulated losses at the end of the
 financial year are less than fifty percent of its net vom. The Company
 has incurred cash loss during the year and in the immediately preceding
 financial year.
 
 (xi) Based on our audit procedures and as per the information and
 explanations given by the management, there are no dues to debenture
 holders. There have been defaults in repayment ofdues to the financial
 institutions and banks during the year, which have been subsequently
 settled by way of One time settlement (OTS) execute dupto March31, 2011
 as disclosed in the note no.  9 of Schedule 25 to the financial
 statements.
 
 The defaults for banks which are not part of OTS discussed above are:
 
 Name of the Bank  Nature of dues   Amount    Due Date   Date of Payment
                                  (Rs.Crores)
 Allahabad Bank    Interest         1.28      Various
                                              dates      27-Jul-2010 and
                                                         2-Apr-2011
 
 Bank of 
 Maharashtra       Interest         0.61      Various
                                              dates      27-Jul-2010 and
                                                         2-Apr-2011
 
 Punjab 
 National Bank     Interest         0.95      Various
                                              dates      27-Jul-2010 and
                                                         2-Apr-2011
 
 State Bank 
 of India          Interest         1.90      Various
                                              dates      27-Jul-2010 and
                                                         6-Apr-2011
 
 Vijaya Bank       Interest         0.52      Various
                                              dates      27-Jul-2010 and
                                                         1-Apr-2011
 
 Bank of India     Interest         0.23      Various 
                                              dates      27-M-2010
 
 ICICI Bank        Interest         2.41      Various
                                              dates      27-M-2010
 
 IDBI Bank         Interest         0.93      Various
                                              dates      27-M-2010
 
 Indian Overseas 
 Bank              Interest         0.75      Various
                                              dates      27-M-2010
 
 State Bank 
 of Hyderabad      Interest         1.10      Various
                                              dates     27-M-2010
 
 (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 Companies (Auditor''s Report) Order, 2003 (as amended)
 are not applicable to the Company.
 
 (xiv) In our opinion, the Company is not dealing in ortrading 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 given to us, the
 Company has not given guarantee for loans taken by others from bank
 orfinancial institutions.
 
 (xvi) Based on information and explanations given to us by 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
 no funds raised on short-term basis have been used for long-term
 investment.
 
 (xviii) The Company has not made any preferential allotment of shares
 to parties or companies covered in the register maintained under
 section 301 ofthe Companies Act, 1956.
 
 (xix) The Company did not have any outstanding debentures during the
 year.
 
 (xx) The Company has not raised any money by public issue during the
 year.
 
 (xxi) Based upon the audit procedures performed for the purpose of
 reporting the true and fair view ofthe financial statements and as
 perthe information and explanations given by the management, we report
 that no fraud on or by the Company has been noticed or reported during
 the year.
 
 For S.R. BATLIBOI & ASSOCIATES
 
 Firm registration number: 101049W Chartered Accountants
 
 per Vikas Kumar Pansari
 
 Partner
 
 Membership No.:93649
 
 Place :Mumbai
 
 Date : May 25,2011