We have audited the attached Balance Sheet of Kirloskar Electric
 Company Limited, Bangalore as at March 31, 2011, the Profit and Loss
 Account and also the Cash Flow statement for the year ended on that
 date annexed thereto.
 
 1 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 by the Companies (Auditor''s Report) (Amendment) Order 2004
 issued by the Company Law Board, in terms of subsection 4A of section
 227 of the Companies Act, 1956(''Order''), we enclose in the annexure a
 statement on matters specified in paragraphs 4 and 5 of the Order.
 
 Further to our comments in the annexure referred to above, we report
 that:
 
 4 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.
 
 5 In our opinion, subject to paragraph 8 of the annexure, the Company
 has kept proper books of account as required by law, so far as it
 appears from our examination of such books.
 
 6 The report on the accounts of the Kuala Lumpur office in Malaysia not
 visited by us but audited by M/s Sundar & Associates, Chartered
 Accountants has been forwarded to us and has been dealt with in the
 manner considered appropriate by us while preparing our report.
 
 7 The Balance Sheet, the Profit and Loss Account and Cash Flow
 Statement dealt with by this report are in agreement with the Books of
 Account and the audited returns received from the Kuala Lumpur office
 of the Company.
 
 8 In our opinion, the Balance Sheet, the Profit and Loss Account and
 Cash Flow Statement dealt with by this report comply in all material
 respects with the mandatory accounting standards referred to in
 subsection (3C) of section 211 of the Companies Act, 1956 as
 applicable, subject to note 22 (b) of Schedule ''O'' (valuation of
 Inventories) (AS 2).
 
 9 On the basis of written representations received from directors as on
 March 31, 2011 and taken on record by the Board of Directors, we report
 that none of the directors of the Company are disqualified as on that
 date from being appointed as a director under clause (g) of sub-section
 (1) of section 274 of the Companies Act, 1956.
 
 10 Attention of the members is invited to:
 
 i) Note 21 of schedule ''O'' regarding accounts of certain debtors,
 creditors, loans and advances, reconciliation of balances between the
 Company, its erstwhile subsidiary KSL and operating business of KPEL
 being under review/reconciliation. The relevant accounts are subject to
 adjustments, if required after completion of review, reconciliation and
 identification of further doubtful debts/advances.
 
 ii) Note 22 of schedule ''O'' regarding SAP ECC 6 systems implemented
 being subject to stabilization/cleansing of data and modifications
 required in the processes to bring the determination of cost and net
 realizable value of inventories at certain units in line with
 Accounting Standard 2. Accordingly, value of inventories adopted in the
 financial statements is as assessed by the management and not verified
 by us.
 
 iii) Note 24 of schedule ''O'' regarding realizable value of assets held
 for sale being assessed by management without the support of an
 external valuation or quotations from prospective buyers
 
 iv) Note 25 of schedule ''O'' regarding amounts due from certain
 companies of Rs.23.692 million, which have incurred losses and whose
 net worth has been partially or wholly eroded.
 
 In all cases referred to above, effect on revenue is not ascertainable.
 We do not express any independent opinion in these matters.
 
 11 In our opinion and to the best of our knowledge and according to the
 information and explanations given to us, the said accounts subject to
 note 20 of schedule ''O'' to the financial statements read with the other
 notes and schedules give the information as required by the Companies
 Act, 1956 in the manner so required and subject to paragraph 10 above,
 paragraph 2 of the annexure to this report 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 profits of the
 Company for the year ended on that date and
 
 C In the case of cash flow statement, of the cash flows of the Company
 for the year ended on that date.
 
 ANNEXURE TO AUDITORS'' REPORT
 (AS REFERRED TO IN PARA 3 OF OUR REPORT TO THE MEMBERS OF KIRLOSKAR
 ELECTRIC COMPANY LIMITED)
 
 1.  a.  The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 b.  The management during the year has physically verified a portion of
 fixed assets in respect of certain units. We have been informed by the
 management that no material discrepancies were observed. However, a
 comprehensive physical verification needs to be carried out. Fixed
 assets lying with third parties are subject to confirmation.
 
 c.  During the year, the Company has not disposed off a substantial
 part of its fixed assets and as such the provisions of clause 4(i) (c)
 of the Order are not applicable to the Company.
 
 2.  a.  Inventories have been physically verified during the year by
 the management. In our opinion, the frequency of verification is
 reasonable. Certain stocks lying with third parties are subject to
 confirmation.
 
 b.  The procedures of physical verification of inventories followed by
 the management need to be improved to make them reasonable and adequate
 in relation to the size of the Company and the nature of its business.
 
 c.  The Company has implemented SAP ECC 6 systems at certain units.
 Certain mistakes and omissions noticed during the year have been
 corrected based on physical inventory taken from time to time (refer
 note 22(a) of schedule O). The Company is in the process of quantifying
 the excess and shortages adjusted in the book of account. Stock records
 at certain units are under updation. Accordingly, we are unable to
 state whether the discrepancies between book records and inventory are
 material and have been properly dealt with in the books of account
 
 d.  We have relied on the representation of the management that the
 consumption of materials and components is in line with production/
 industry norms.
 
 3.  a.  The terms and conditions on which two fixed deposits were
 accepted from a director and a relative of a director are prima facie
 not prejudicial to the interest of the Company. The maximum amount
 involved during the year and the amount outstanding as at the end of
 the year were Rs. 3.500 million.
 
 b. The Company has not granted any loans to companies, firms and other
 parties covered in the register maintained under section 301 of the
 Companies Act, 1956. For this purpose, we have relied on the
 representations of the management that monies due from parties referred
 to in note 19 & 25(a) of schedule ''O'' are advances and not in the
 nature of loans.
 
 4.  Having regard to the explanations given to us that some of the
 bought out items/assets are proprietary and/or special and/or are
 customised to the requirements of the Company and as such comparative
 quotations are not available and subject to notes 21 & 22 of schedule
 ''O'', there are adequate internal control procedures commensurate with
 the size of the Company and the nature of its business with regard to
 purchases of inventory and fixed assets and for the sale of goods. We
 have not observed during the course of our audit any continuing failure
 to correct major weaknesses in internal controls, subject to note 21 of
 Schedule ''O''.
 
 5.  a.  According to the information and explanations given to us, we
 are of the opinion that transactions that need to be entered into the
 register maintained under section 301 of the Companies Act, 1956 have
 been so entered.
 
 b. No comments can be made on the reasonability of the rates in respect
 of the transactions so made and exceeding Rs. 500,000 in respect of any
 one party since there are no similar transactions with third parties at
 the relevant time.
 
 6.  The Company has complied with the provisions of sections 58A and
 58AA of the Companies Act, 1956 and the Companies (Acceptance of
 Deposits) Rules, 1975 with regard to deposits accepted from the public.
 
 7.  The Company''s internal audit system needs to be strengthened in
 terms of coverage and periodicity to make the same commensurate with
 the size and nature of its business.
 
 8.  We have broadly reviewed the Cost Records maintained by the Company
 as prescribed by the Central Government under clause (d) of sub section
 (1) of 209 of the Companies Act, 1956 and are of the opinion that prima
 facie the prescribed accounts and records have been made and
 maintained, subject to paragraph 2(c) above regarding inventory
 records. We have not made a detailed examination to ensure their
 accuracy or completeness.
 
 9.  a.  The Company has been regular in depositing undisputed statutory
 dues including provident fund, employees'' state insurance, income tax,
 sales tax, customs duty, excise duty, cess and other statutory dues
 with the appropriate authorities barring delays in certain months and
 non payment of certain dues detailed in paragraph 9(b) below. 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. We have been informed by the management that the customs duty
 payable of Rs. 4,119,078 referred to in our report dated June 25, 2007 to
 the members of the Company is old, not subsisting and not payable.
 Matured deposits aggregating to Rs.  244,000 have not been remitted to
 Investor Protection Fund, pending resolution of disputes regarding
 beneficiaries. According to the information and explanations given to
 us, the following undisputed statutory dues were outstanding as at
 March 31, 2011 outstanding for a period of more than six months from
 the date they became payable.
 
 Name of the
 Statute       Nature of Dues     Amount  Period to  Due Date  Date of
                                                               Payment
                                   Rs.    which it 
                                          relates
 
 The 
 Maharashtra    MVAT             784,648  2008-2009  March 31, 
                                                     2010      Unpaid as
                                                               on date
 VAT Act, 2002
 
 The Service 
 Tax Act        Service tax on
                Goods              5,503  April 
                                          2010 to    5th of
                                                    subsequent Unpaid as
                                                               on date
                Transport Agency          August 
                                          2010      month
 
 c.  According to the information and explanations given to us, the
 following dues of sales tax, income tax, customs tax, excise duty,
 service tax and cess had not been deposited as at March 31, 2011 with
 the relevant authorities on account of disputes.
 
 Name of the 
 statue      Nature of the dues          Amount Period to Forum where
                                                          dispute is
                                          (Rs.) which the pending 
                                                  amount
                                                 relates
 
 Central 
 Sales Tax   Demands at Various 
             Branches of the Company     781,446  1985 to 
                                                    2001  Sales Tax 
                                                          Appellate 
                                                          Tribunal
 
 Local Sales 
 Tax at      Demands at Various 
             Branches of the Company   1,596,910  1985 to 
                                                   2001   Sales Tax 
                                                          Appellate
                                                          Tribunal
 Various 
 Branches
 
 Local Sales 
 Tax at      Demands at Various
             Branches of the Company   2,459,790  1999 to
                                                   2000   Joint
                                                          Commissioner
                                                          of Sales tax
 Various 
 Branches
 
 Central 
 Sales Tax   Demands at Various 
             Branches of the Company   1,178,688  1999 to 
                                                   2000   Joint 
                                                          Commissioner
                                                          of Sales tax
 
 Central 
 Sales Tax   Sales tax demand.         4,532,781  2002 to 
                                                    2005  Commissioner
                                                          of Sales Tax(A)
 
 Bombay Sales 
 Tax Act     Sales tax demand            505,585  2002 to
                                                   2005   Commissioner
                                                          of Sales Tax(A)
 
 Central 
 Sales Tax   Sales tax demand.        54,648,404  1999-
                                                   2000,  Maharastra
                                                          Sales Tax 
                                                          Tribunal,
                                                  2001-
                                                 2002 &   Mumbai
                                                  2002-
                                                   2003
 
 Bombay Sales 
 Tax Act     Sales tax demand            334,085  1999-
                                                   2000,  Maharastra
                                                          Sales Tax
                                                          Tribunal,
                                                  2001-
                                                  2002 &  Mumbai 
                                                  2002-
                                                  2003
 
 Works 
 Contract 
 Tax Act     Sales tax demanded        1,004,030  2001-
                                                  2002 &  Maharastra 
                                                          Sales Tax
                                                          Tribunal,
                                                  2002-
                                                  2003    Mumbai
 
 Kamataka 
 Sales Tax 
 Act         Resale tax demanded      36,906,894  2002 - 
                                                  2005    High Court of
                                                          Karnataka
 
 Karnataka 
 Value       VAT penalty demanded     38,051,249  2005 - 
                                                  2008    High Court
                                                          of Karnataka
 Aded Tax 
 Act, 2003
 
 The Customs 
 Act, 1962.  Customs demand            5,154,369  1994 to
                                                   1999   Asst.
                                                          Commissioner 
                                                          of Customs
 
 The Central 
 Excise, 1944 Excise demand              217,927  April 
                                                   1993   High Court of
                                                          Karnataka
 
 The Central 
 Excise, 1944 Excise demand              129,023 September 
                                                   2006   Central Excise
                                                          and Service Tax
                                                          Appellate 
                                                          Tribunal
 
 The Central 
 Excise, 1944 Excise demand              133,370 September
                                                   2007   Central Excise
                                                          and Service Tax
                                                          Appellate
                                                          Tribunal
 
 The Central 
 Excise, 1944 Cenvat credit demand       574,282  April
                                                  2008 to Commissioner of
                                                          Central
                                                   June
                                                   2009   Excise(Appeals)
 
 The Income 
 Tax Act, 1961 Income tax demand       9,306,736 Assessment Commissioner
                                                            of Income Tax
                                                 year 2008
                                                  -2009      (Appeals)
 
 10.  In our opinion, the Company does not have accumulated losses. The
 Company has not incurred cash losses during the financial year covered
 by our audit and the immediately preceding financial year. This is
 without taking cognizance of our comments in paragraph 10 of our
 report.
 
 11.  In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to
 banks & financial institutions except for delays in certain months.
 
 12 The Company has not granted any loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities
 and as such the provisions of clause 4(xii) of the Order are not
 applicable to the Company.
 
 13. 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 Order are not applicable to the Company.
 
 14.  In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other investments. Accordingly, the
 provisions of clause 4(xiv) of the Order are not applicable to the
 Company.
 
 15.  In our opinion, the terms and conditions on which the Company has
 given guarantee for loan taken by its wholly owned subsidiary from a
 bank is not prima facie prejudicial to the interest of the company.
 
 16.  In our opinion, the Company has not taken any terms loans during
 the year and hence clause 4 (xvi) of the Order is not applicable.
 
 17.  According to the information and explanations given to us and on
 an overall examination of the balance sheet of the company, we report
 that Rs.498.785 million funds raised on short- term basis have been
 used for long-term investment.
 
 18.  According to the information and explanations given to us, the
 Company has not made any preferential allotment of shares to parties
 covered in the register maintained under section 301 of the Act.
 
 19.  According to the information and explanations given to us, the
 debentures issued by the Company to the Industrial Development Bank of
 India to an extent of Rs.49.4 million in terms of the scheme of
 arrangement approved by the honourable High Court of Karnataka under
 sections 391 to 394 of the Companies Act, 1956 stand redeemed.
 
 20.  The Company has not raised any monies by public issue during the
 year. Accordingly, the provisions of clause 4(xx) of the Order are not
 applicable to the Company.
 
 21 According to the information and explanations given to us, no
 material frauds on or by the Company that causes material misstatement
 to the financial statement have been noticed or reported during the
 year.
 
                                           For B.K.RAMADHYA Nl & CO.
 
                                              Chartered Accountants
 
                                       Firm Registration No 002878S
 
                                                CA SHYAM RAMADHYANI
 
 Bangalore                                                  Partner
 
 Date: May 28, 2011                        Membership number 019522