We have audited the attached Balance Sheet of Ispat Industries Limited
 (the Company) as at 30th June 2010 and also the Profit and Loss
 account and the cash flow statement for the fifteen months period 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.
 
 We conducted our audit in accordance with the 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 the management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 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, we enclose
 in the Annexure a statement on the matters specified in paragraphs 4
 and 5 of the said Order.
 
 Further to our comments in the Annexure referred to above, we report
 that:
 
 1.  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.
 
 2.  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 and proper returns adequate for the purposes of our audit
 have been received from the branches/sales depots not visited by us.
 
 3.  The balance sheet, profit and loss account and cash flow statement
 dealt with by this report are in agreement with the books of account.
 
 4.  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, subject to our comment in Para 7(a) below.
 
 5.  On the basis of the written representations received from the
 directors, as on 30th June 2010, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 30th June 2010 from being appointed as a director in terms of clause
 (g) of sub-section (1) of section 274 of the Companies Act, 1956.
 
 6.  Without qualifying our opinion, attention is drawn to the following
 Notes on Schedule 23 :- a) The accumulated losses of the Company as per
 the books of accounts stand at Rs. 2134.23 crores as on
 
 30th June 2010. However, after considering the impact of the
 qualifications mentioned in Para 7 below, the accumulated losses would
 stand at Rs. 3082.99 crores as on 30th June 2010, which is in excess of
 the Shareholders Fund of Rs. 2748.98 crores (excluding revaluation
 reserve of Rs. 965.94 crores) as on that date.  As stated in Note No.
 24, the management has a strategic plan for the revival of the Company
 and it is hopeful of improvement in the financial health of the Company
 in the near future. Accordingly, the financial statements for the
 period have been drawn up by the management as per the going concern
 assumption.
 
 b) Note No. 13 regarding Sundry Debtors of Rs. 255.61 crores (Rs.
 247.73 crores) receivable from Peddar Realty Pvt. Ltd. towards sale
 consideration of landed property along with interest thereon, which has
 been considered good of recovery by the management.
 
 c) Note No. 23 regarding non-reconciliation of credit balances of Rs.
 1137.17 crores (Rs. 1001.40 crores) relating to certain major parties
 towards raw material supplies. The management does not expect any
 material impact on the financial statements on account of such
 reconciliation.
 
 7.  Attention is drawn to the following Notes on Schedule 23:
 
 a) Note No. 12(a) regarding recognition of net deferred tax asset (DTA)
 of Rs. 964.28 crores (including Rs. 14.15 crores for the period) in the
 accounts upto 30th June 2010, based on the future profitability
 projections made by the management. However, we are unable to express
 any opinion on the above projections and their consequential impact, if
 any, on the recognition of such DTA. This had also caused us to qualify
 our audit opinion on the financial statements relating to the preceding
 year.
 
 b) Note No. 15 regarding remuneration of Rs 15.52 crores (including Rs.
 10.84 crores for earlier years) paid to the managing and other whole
 time directors, which is in excess of the approvals received from the
 Ministry of Cor porate Affairs during the period. However, no
 adjustment towards the above excess managerial remuneration recoverable
 from these directors, has been made in the accounts, pending disposal
 of the representation made by the Company to the Ministry of Corporate
 Affairs for reconsideration of the above approvals.
 
 Had the impact of above items been considered, there would be a loss of
 Rs. 1271.10 crores (including DTA of Rs. 950.13 crores recognized upto
 31st March 2009) as against the repor ted loss of Rs. 322.34 crores for
 the period and the Profit and Loss account debit balance would have
 been Rs. 3082.99 crores as against the reported figure of Rs. 2134.23
 crores as on the balance sheet date.
 
 8.  Subject to the effect of the matters referred to in paragraph 7
 above , 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 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 30th June 2010;
 
 b) in the case of profit and loss account, of the loss for the period
 ended on that date; and
 
 c) in the case of cash flow statement, of the cash flows for the period
 ended on that date.
 
 Annexure to the Auditors Report
 
 (Referred to in our report of even date to the members of Ispat
 Industries Limited as at and for the fifteen months period ended 30th
 June 2010)
 
 (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 period but there is a regular programme of
 verification in a phased manner to cover all the items of fixed assets
 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.
 As informed, no material discrepancies were noticed on such
 verification of fixed assets during the period.
 
 (c) There was no substantial disposal of fixed assets during the
 period.
 
 (ii) (a) The management has conducted physical verification of
 inventory at reasonable intervals during the period except for transit
 stock of materials for which confirmations have been furnished to us
 for the major amount thereof.
 
 (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.
 
 (c) The Company is maintaining proper records of inventory. As
 informed, no material discrepancies were noticed on physical
 verification of inventories during the period.
 
 (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)(b) to (d) of the Order are
 not applicable.
 
 (b) 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.
 Therefore, the provisions of clauses 4(iii)(f) and (g) of the Order are
 not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us, and having regard to the explanation that some of the
 items purchased are of a special nature and alternative sources do not
 exist for obtaining quotations thereof, it appears that 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, no major weakness has been noticed in the internal
 control system in respect of these areas and we have not observed any
 continuing failure to correct major weakness in internal control system
 of the company.
 
 (v) According to the information and explanations provided by the
 management, there have been no transactions during the period that need
 to be entered into the register maintained under Section 301 of the
 Companies Act, 1956.
 
 (vi) As informed, the Company has not accepted any deposit from the
 public.
 
 (vii) The Company has an internal audit system, which in our opinion,
 is 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 in respect of the companys products under
 section 209(1)(d) of the Companies Act, 1956, and are of the opinion
 that prima facie, the prescribed accounts and records have been
 maintained.
 
 (ix) (a) The Company has been generally regular in depositing
 undisputed statutory dues including provident fund, investor education
 and protection fund, income-tax, sales-tax, wealth-tax, service tax,
 custom duty, excise duty, cess and other material statutory dues
 applicable to it, with the appropriate authorities though there have
 
 been delays in a few cases. The provisions relating to employees state
 insurance are not applicable to the Company.
 
 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, income-tax, sales-tax, wealth-tax,
 service tax, custom duty, excise duty, cess and other undisputed
 statutory dues were outstanding, as on the Balance Sheet date for a
 period of more than six months from the date they became payable.
 
 (c) According to the records of the Company, the dues in respect of
 income tax, sales tax, wealth-tax, service tax, custom duty, excise
 duty and cess etc. on account of any dispute are as follows :
 
 Name of the Statute   Nature of the         Amount    Period to
                       Dues                  (Rs in    which the
                                             crores)   amount 
                                                       relates
 
                      Dispute of Cenvat 
                      credit on                        1994-95
 
                      Inputs & Capital 
                      Goods                            1997-99
 
                      and allied matters     56.70     2000-04
 
                      (Net of Rs 2.43 
                       crores                          2004-09
                       deposited under 
                       protest)
 Central Excise Act   Duty on valuation of   14.89     2000-04
 
                      Hot Metal
                      Duty on Freight         5.39    1996-2003
 
                      Various matters
                     (Net of Rs 0.54 crore    2.06    1998-2005
                      deposited under 
                      protest)
 
                      Transfer of Cenvat 
                      Balance                 2.01     2005-06
 
                      from one location 
                      to other
 The Custom Act, 1962 Demand of Custom 
                      duty                    6.29    1994-2005
                      on barge and 
                      stevedoring
                      charges
                      Tax on services 
                      rendered
 The Finance Act, 
 1994                 by foreign consultants  0.27    1998-2003
                      (Net of Rs 0.05 crore
                       deposited under 
                       protest)
                      Tax on Classification 
                      of
 Bombay Sales Tax Act CR/GC as manufacturing  26.43   1998-2001
                      process(Net of Rs 
                      0.33 crore                        2002-04
                      deposited under 
                      protest)
                      Purchase Tax on Zinc     0.36     1998-91
                                                        1995-96
 Central Sales 
 Tax Act              C and F Form 
                      related                  1.62     2003-04
                      matters                           2005-06
 
 West Bengal Value    Purchase Tax Matters     0.01     2005-06
                      Added Tax Act, 2003
 
 Income Tax Act       Minimum Alternate Tax    3.38     1989-91
                                                        2000-01
 Wealth Tax Act       Demand on valuation      0.27     2001-02
 
 
 Name of the Statute                      Forum where
                                          dispute is pending
 
 Central Excise Act                      Commissioner (Appeal),
                                         Central Excise &
                                         Service Tax Appellate
                                         Tribunal, High Court,
                                         Supreme Court
 
 The Custom Act, 1962                    Commissioner (Appeal)
 
                                         Central Excise &
 The Finance Act, 1994                   Service Tax Appellate
                                         Tribunal
 
 Bombay Sales Tax Act                    Jt. Commissioner,
                                         High Court
 
                                         Sales Tax Appellate
                                         Tribunal
 
 Central sales Tax Act                   W.B. Commercial Tax &
                                         Revision Board,
                                         Sr. Joint Commissioner
 West Bengal Value
 Added Tax Act, 2003                     Sr. Joint Commissioner
 
 Income Tax Act                          High Court
 
 Wealth Tax Act                          CIT (Appeal)
 
 (x) The Companys accumulated losses at the period-end are more than
 fifty percent of its net worth. The Company has not incurred cash loss
 in the current period but had incurred cash loss in the immediately
 preceding financial year.
 
 (xi) Based on our audit procedures and as per the information and
 explanations given by the management, the Company has delayed in
 repayment of dues to domestic financial institutions, banks [excluding
 Rs.12.38 Crores, the repayment of which has been re-scheduled as
 indicated in Note No. 11 on Schedule 23] and debenture holders during
 the period to the extent of Rs. 2942.24 crores, which includes
 Rs.1937.40 crores towards working capital facilities (the delay in such
 repayments for more than 60 days being Rs. 553.23 crores). Further Rs.
 377.37 crores of such dues were in arrears as on the balance sheet date
 (the delay for more than 60 days being Rs.80.22 crores).
 
 (xii) According to the information and explanations given to us and
 based on the documents and records produced, 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 and therefore, the provisions of clause
 4(xiii) of the Order are not applicable.
 
 (xiv) In our opinion, the Company is not dealing 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 given corporate guarantees of Rs. 130 crores and has also
 pledged investments of Rs. 110 crores in its wholly owned subsidiary
 Ispat Energy Limited, for loans to be taken by the above investee
 Company from banks and financial institutions, the terms and conditions
 whereof, in our opinion, based on the management representation are not
 prima-facie prejudicial to the interest of the Company.
 
 (xvi) Based on the information and explanations given to us by the
 management, term loans were applied for the purpose for which these
 were obtained.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, we report
 that the Company has used funds to the extent of Rs 882.65 crores
 approximately, raised on shor t-term basis for re-payment of long term
 loans and financing of operating losses.
 
 (xviii) The Company has not made any preferential allotment of shares
 during the period 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 as on the
 Balance Sheet date.
 
 (xx) The Company has not raised any money through a public issue during
 the period.
 
 (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.  
                                     Firm registration number: 301003E 
                                                 Chartered Accountants 
 22, Camac Street
 
 Block C, 3rd Floor                                Per R. K. AGRAWAL
 Kolkata - 700 016.                                            Partner
 
 Camp: Mumbai                                     Membership No. 16667
 
 Dated: 28th August, 2010.