Ispat Industries

We have audited the attached Balance Sheet of Ispat Industries Limited
 as at 31sl March, 2009 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.
 
 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 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^managenient, 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 Section
 227(4A) of the Companies Act, 1956, we enclose in the Annexure a
 statement on the matters specified in paragraphs 4 & 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 Row 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 below.
 
 5.  On the basis of written representations received from the
 directors, as on 31stMarch, 2009, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 31st March, 2009 from being appointed as director in terms of clause
 (g) of sub-section (I) of Section 274 of the Companies Act, 1956.
 
 6.  Without qualifying our opinion, attention is drawn to the following
 Notes on Schedule 22(B) :-
 
 a) Note No. 13 regarding remuneration of Rs. 14.28 crores (including
 Rs. 4.57 crores for earlier years) paid to the managing and/or other
 whole time directors, which is pending approval of the Central
 Government.
 
 b) As at the balance sheet date, the accumulated losses of the Company
 stand at Rs. 2782.28 crores (after giving impact of the qualification
 mentioned in para 7 below) as against the Shareholders fund of Rs.
 2798.53 crores (excluding revaluation reserve of Rs. 1070.44 crores).
 As stated in Note No. 20 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 year have been drawn up by the management
 as per the going concern assumption.
 
 c) Note No. 12 regarding Sundry Debtors of Rs. 247.73 crores (Rs.
 220.94 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.
 
 d) Note No. 19 regarding non-reconciliation of credit balances of Rs.
 1001.40 crores relating to certain major parties towards raw material
 supplies.
 
 7.  Attention is drawn to Note No. 11 on Schedule 22(B) regarding
 recognition of net deferred tax asset (DTA) ofRs. 950.13 crores
 (including Rs. 338.81 crores for the year) in the accounts upto 31st
 March 2009, 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.
 
 Had the impact of above item been considered, there would be a loss
 ofRs. 1638.24 crores (including DTA ofRs. 546.57 crores recognized upto
 31st March 2008 and DTA ofRs. 64.75 crores arisen on adjustment of
 Exchange difference of 2007-08 with Opening Profit and Loss Account
 debit balance) as against the reported loss ofRs. 688.11 crores for the
 year and the Profit and Loss account debit balance would have been Rs.
 2 782.28 crores as against the reported figure ofRs. 1832.15 crores.
 
 8.  Subject to the effect of the matter 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 annexed 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 the Balance Sheet, of the state of affairs of the
 Company as at 31st March 2009;
 
 b) In the case of the Profit and Loss Account, of the loss of the
 Company for the year ended on that date; and
 
 c) In the case of the Cash Flow Statement, of the cash flows of the
 Company for the year 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 year ended 31st March, 2009)
 
 (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
 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 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.
 
 (c) The Company is maintaining proper records of inventory. As
 informed, no material discrepancies were noticed on physical
 verification of inventories during the year.
 
 (iii) As informed, the Company has neither granted nor taken any loan,
 secured or unsecured, to/from companies, firms or other parties covered
 in the register maintained under Section 301 of the Companies Act, 1956
 and hence, clauses 4(iii) (b) to (d), (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.
 
 (v) According to the information and explanations provided by the
 management, there have been no transactions during the year 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 statutory dues 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.
 
 (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 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 in respect of
 income tax, sales tax, wealth-tax, service tax, custom duty, excise
 duty, 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                53.67       1997-99
                         and allied 
                         matters                          2000-04
 Central Excise Act      Duty on valuation of 
                         Hot Metal            14.89       2000-04
                         Duty on Freight       5.39       1996-2003
                         Various matters       2.02       1998-2005
                         Transfer of Cenvat 
                         Balance from one 
                         location to other                2005-06
 The Finance Act, 1994   Tax on services 
                         rendered              0.27       1998-2003
                         by foreign 
                         consultants
                         Tax on Classification 
                         of                   26.43       1998-2001
 Bombay Sales            CR/GC as manufac
                         turing process       26.43       2002-04
 Tax Act                 Purchase Tax on Zinc  0.36       1989-91
                                                          1995-96
 Central Sales           C Form related 
                          matters             0.96       2003-04 
 Tax Act
 Income Tax Act          Minimum Alternate 
                         Tax                   3.39       1989-91 
                                                          2000-01
 Wealth Tax Act          Demand on valuation   0.27       2001-02
 
 
 Name of the Statue                Forum where dispute is pending
 
 Central Excise Act                Commissioner (Appeal),
                                   Central Excise & Service
                                   Tax Appellate
                                   Tribunal, High Court,
                                   Supreme Court
 The Finance Act, 1994             Central Excise &
                                   Service Tax Appellate Tribunal
 
 Bombay Sales                      Jt. Commissioner, High Court
                                   Sales Tax 
                                   Appellate _Tribunal _
 
 Central Sales                     W.B. Commercial Tax & 
                                   Revision Board
                                   Tax Act
 Income Tax Act                    High Court 
 Wealth Tax Act                    CIT (Appeal)
 
 (x) The Companys accumulated losses at the end of the financial year
 are more than fifty percent of its net worth, The Company has incurred
 cash loss in the current year but has not incurred any 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. 75.50 crores, the repayment of which has been re-scheduled as
 indicated in Note No. 9 on Schedule 22(B)] and debenture holders during
 the year to the extent of Rs. 2429.51 crores, which includes Rs.1283.16
 crores towards working capital facilities (the delay in such repayments
 for more than 90 days being Rs. 212.33 crores). Further Rs.326.34
 crores of such dues were in arrears as on the balance sheet date (the
 delay for a period of more than 90 days being Rs. 66.47 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 guarantees of Rs. 210 crores for loans to be taken by
 a wholly owned subsidiary from banks or financial institutions, the
 terms and conditions whereof, in our opinion, based on the management
 representation and considering the trade relation, 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 ofRs. 1164.67 crores
 approximately, raised on short-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 year to parties or companies covered in the register
 maintained under Section 301 of the Companies Act, 1956.
 
 (xix) As informed to us, adequate security has been created in respect
 of debentures issued by the Company and outstanding at the year-end.
 
 (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.
 
                                                 Chartered Accountants 
 22, Camac Street,
 Block C\ 3st Floor                                 Per R.K. AGARAWAL
 Kolkata - 700 016.                                            Partner
 Dated : 30th June, 2009. 
                                                  Membership No. 16667