1.  We have audited the attached Balance Sheet of Khatau Makanji
 Spinning and Weaving Company Limited, as at 31st March, 2012, and 
 also the Statement of Profit and Loss of the Company 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 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 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,
 issued by the Central Government of India in terms of sub-section (4A)
 of section 227 of the Companies Act 1956, as amended by the Companies
 (Auditor''s Report) (Amendment) Order, 2004, we enclose in the
 Annexure a statement on the matters specified in paragraphs 4 and 5 of
 the said Order.
 
 4.  Further to our comments in the Annexure referred to above, we
 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 those
 books.
 
 c) The Balance Sheet, the Statement of Profit and Loss and Cash Flow
 Statement dealt with by the report are in agreement with the Books of
 Account.
 
 d) In our opinion the Balance Sheet, Statement of Profit and Loss and
 Cash Flow Statement, comply with the Accounting Standards referred to
 in sub-section (3c) of Section 211 of the Companies Act 1956.
 
 e) On the basis of written representations received from the Directors
 as on 31s1 March, 2012, and taken on record by the Board of Directors,
 we report that none of the Directors are disqualified as on 31st March,
 2012 from being appointed as a director in terms of clause (g) of
 sub-section (1) of Section 274 of the Companies Act, 1956.
 
 f) Attention is invited to the following:-
 
 i) An amount ofRs 20,000,000 which was received from the party
 appointed as per the Company''s sanctioned scheme under BIFR for
 settlement of creditors, has been refunded back to the same party
 during the year. This amount was lying unutilized. The Company refunded
 this amount to the party, on the party''s request as they were
 temporarily short of funds. We are
 
 unable to ascertain and confirm the same. The party balance outstanding
 at the end of the - accounting year amounting to Rs 6,260,283 is
 subject to reconciliation and confirmation.  Hence we are unable to
 ascertain the exact liability which may arise on this account.
 
 ii) The Company''s preference shares amounting to Rs 29,92,500 have
 not been redeemed by 22.2.2012 as per the company''s sanctioned scheme
 under BIFR, vide its order dated 22.2.2007.
 
 5.  Subject to what has been mentioned in Paragraph (f) above, and our
 comments in Annexure referred to in Paragraph 3, in our opinion and to
 the best of our information and according to the explanations given to
 us, the Accounts read together with notes thereon 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.
 
 (i) In the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2012.
 
 (ii) In the case of the Statement of Profit and Loss, of the Profit for
 the year ended on that date.
 
 (iii) In case of the Cash Flow Statement of the cash flows of the
 Company for the year ended on that date.
 
 ANNEXURE
 
 Re: The Khatau Makanji Spinning and Weaving Company Limited
 
 Referred to in paragraph 3 of our report of even date.
 
 i.  a) The Company is maintaining proper records showing full
 particulars including quantitative details
 
 and situation of its fixed assets except Furniture and Fixtures and
 Office Equipments.
 
 b) These fixed assets have been physically verified by the management
 and no material discrepancies were noticed.  .
 
 c) The Company has not disposed off substantial parts of its fixed
 assets during the year.
 
 ii.  a) The inventory has been physically verified during the year by
 the management. In our opinion, the
 
 freouencv of verification is reasonable.
 
 b) The procedures of physical verification of inventories followed by
 the management are reasonable and adequate in relation to the size of
 the company and the nature of its business.
 
 c) On the basis of our examination of the records of inventory, we are
 of the opinion that the company is maintaining proper records of
 inventory. The discrepancies noticed on verification between the
 physical stocks and the book records were not material.
 
 iii. (a) to (d) The Company has granted an interest free advance to a
 company covered in the Register
 
 maintained under Section 301 of the Companies Act, 1956. There are no
 terms of repayment, in respect of the said loan, the maximum balance
 outstanding at any time during the year is Rs. 50,000 and the year end
 balance is Rs. 50,000.
 
 (e) to (g) The Company has taken interest free loans from a director
 and from 3 companies covered in Register maintained under Section 301
 of the Companies Act, 1956. Maximum balance outstanding during the year
 was Rs. 422,331. The year end balance of loans taken from parties was
 Rs. 422,331 There are no terms for repayment.  .
 
 iv.  We are informed by the Management that internal control systems
 commensurate with the size and nature of its business will be
 introduced by the Company as and when the proposed comprehensive
 Rehabilitation Scheme at Mahad is implemented.
 
 v.  a) According to the information and explanations given to us, we
 are of the opinion that the particulars
 
 of all contracts or arrangements that need to be entered into the
 register maintained under section 301 of the Companies Act, 1956 have
 been so entered, b) In our opinion and according to the information and
 explanations given to us, the transactions made in pursuance of
 contracts or arrangements entered in the register maintained under
 section 301 of the Companies Act, 1956 have been made at prices which
 are reasonable having regard to prevailing market prices at the
 relevant time.
 
 vi.  The Company has not accepted any deposits from the public to which
 the provisions of Section 58A, 58AA or any other relevant provisions of
 the Companies Act, 1956 and the rules framed there under would apply.
 
 vii. The Company has no Internal Audit System.
 
 viii.  As there is no production of processed goods during the year
 under audit there is no question of maintenance of Cost Records
 U/s.209(1)(d) of Companies Act, 1956.
 
 ix.  a) The company is regular in depositing undisputed statutory dues
 with the appropriate authorities,
 
 except for the following statutory due, as at the last day of the
 financial year which was outstanding for a period of more than six
 months from the date it has become payable.  ,
 
 Particulars Amount in Rupees
 
 Gram Panchayat Tax 353,006
 
 b) There are no disputed statutory liabilities not paid by the Company.
 
 x.  Accumulated losses of the Company are more than fifty percent of
 its net worth. The Company has not made cash loss during the year or in
 the immediately preceding financial year.
 
 xi.  There are no dues to Financial Institutions and Banks.
 
 xii. The Company has not granted any loans and Advances on the basis of
 Security by way of pledge of shares, debentures or any other security.
 
 xiii.  In our opinion, the company is not a chit fund or nidhi / mutual
 benefit fund / society. Therefore, the provisions of clause 4 (xiii) of
 the Companies (Auditor''s Report) Order, 2003 are not applicable to
 the company. ''
 
 xiv. In our opinion, the company is not dealing in or trading in
 shares, securities, debentures and any other investments. Accordingly,
 the provisions of clause 4 (xiv) of the aforesaid Order are not
 applicable to the company.
 
 xv.  In our opinion and according to the information and explanation
 given by the management, the company has not given any guarantees for
 loans taken by others from banks or financial institutions.
 
 xvi. The Company has not taken any term loan during the year.
 Therefore, the provisions of clause 4 (xvi) of the Order are not
 applicable.
 
 xvii.  There were no short term funds raised during the year.
 Therefore, the provisions of clause 4 (xvii) of the Order are not
 applicable. ‘
 
 xviii.  According to the information and explanation given to us and
 the records examined by us, during the year, the Company has not made
 any preferential allotment of shares to parties and companies covered
 in the Register maintained under Section 301 of the Companies Act,
 1956.
 
 xix. The Company has not issued any debentures during the year.
 
 xx.  No public issue was made by the company during the year.
 
 xxi. Based upon the audit procedures performed and 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 year.
 
                                          For SORAB S. ENGINEER & CO.
 
                                                Chartered Accountants 
                               Firm Registration No. 110417W M.P.ANTIA
 
 Place: Mumbai                                                 PARTNER
 
 Date : 25th June 2012                                       MEMBERSHIP