1.  We have audited the attached Balance Sheet of M/s LML Lim- ited
 (the Company) as at 31st March, 2011, the Profit and Loss account and
 Cash Flow Statement of the Company for the pe- riod ended on that date
 , both annexed thereto, all of which we have signed under reference of
 this report. These financial state- ments are the responsibility of the
 Company''s Management. Our responsibility is to express an opinion on
 these financial state- ments based on our audit.
 
 2.  We have conducted our audit in accordance with auditing stan- dards
 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 mis- statement. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the financial state- ments. An audit also includes
 assessing the accounting prin- ciples 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 (Auditors'' Report) Order, 2003, issued
 by the Central Government of India in terms of Section 227(4A) of the
 Companies Act, 1956 and on the basis of such checks as considered
 appropriate and according to the informa- tion and explanations given
 to us during the course of the audit, we enclose in the Annexure hereto
 a statement on the matters specified in paragraphs 4 and 5 of the said
 Order to the extent applicable.
 
 4.  Further to our comments in the Annexure referred to in para- graph
 3 above, we report that:
 
 a.  As mentioned in note no.4 of Schedule 14, the balances of some of
 the sundry debtors, creditors, lenders and loans and advances are
 subject to confirmation/ reconciliation and subsequent adjustments, if
 any. As such, we are un- able to express any opinion as to the effect
 thereof on the financial statements for the period.
 
 b.  As mentioned stated in note no. 5 of Schedule 14, the Company has
 valued the inventories except finished goods at cost instead of at cost
 or realizable value, whichever is lower which is not in compliance with
 the Accounting Stan- dard 2 – Valuation of Inventories prescribed in
 the Com- panies( Accounting Standards) Rules, 2006. As explained to us
 the process of possible utilization of slow / non-mov- ing items of
 inventory will be undertaken upon - finaliza- tion of the product plan
 and the restructuring/revival plan.  Since the realizable value as on
 31st March, 2011 has not been determined, we are unable to express any
 opinion as to the effect thereof on the financial statements for the
 period.
 
 c.  As mentioned in note no. 9 of Schedule 14, the Company has become a
 Sick Industrial Company due to erosion of its net worth and it''s
 current liabilities have also exceeded its current assets by Rs.
 24676.63 lakhs as at Balance Sheet date. These factors, along with
 other matters as set forth in the said note, raise doubt that the
 Company will be able to continue as a going concern. The Company is in
 the process of restructuring/revival of its business under the aegis of
 BIFR and has already submitted the draft re- vival scheme, considering
 this the accounts have been pre- pared on a going concern basis. The
 Company''s ability to continue, as a going concern is dependent upon
 success- ful restructuring and revival of its business. In case the
 going concern concept is vitiated, necessary adjustments will be
 required on the carrying amount of Assets and Li- abilities which are
 not ascertainable.
 
 d.  As mentioned in note no.11 of Schedule 14, interest is pro- vided
 on outstanding amount due to Banks / Financial In- stitutions (Secured
 Lenders) at the rate specified for the period amounting to Rs. 2590.73
 lakhs as per Multi-partite Agreement (MPA) executed by the Company with
 the Se- cured Lenders. MPA provides different rates of interest for
 different periods as per schedule given therein with Yield to maturity
 (YTM) rate of 6.5%. As compared to the YTM rate, there is an excess
 provision of interest of Rs. 239.20 lakhs for the period, whereby the
 loss for the period is higher by the said amount. Upto 31st March, 2011
 there is cumulative short provision of Rs 125.34 lakhs on the basis of
 YTM and accumulated losses are lower by said amount.
 
 e.  As mentioned in note no. 17 of Schedule 14, regarding non
 compliance of requirements under Micro, Small and Medium Enterprises
 Development Act, 2006, in the ab- sence of information available with
 the Company. As such, we are unable to express any opinion as to the
 effect thereof on the financial statements for the period.
 
 The consequential effect of sub Para (a), (b), (c) and (e) above on
 assets and liabilities as at 31st March, 2011 and loss for the period
 ended 31st March, 2011 are not ascertainable. Had the effect of above
 as stated in sub- para (d) have been given, the loss for the period
 would have been lower by Rs 239.20 lakhs, assets and liabilities and
 debit balance in the profit & loss account would have been higher by
 Rs. 125.34 lakhs.  
 
 5. Further to our comments in the Annexure referred to in para- graph 3
 above, we report that:
 
 a) We have obtained all the information and explanations, which, to the
 best of our knowledge and belief were nec- essary 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, Profit & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash
 Flow Statement dealt with by this report comply with the Accounting
 Standards (AS) referred to in sub sec- tion (3C) of Section 211 of the
 Companies Act, 1956 ex- cept non compliance of AS 2 – Valuation of
 Inventories (Refer para 4(b) above).
 
 e) On the basis of written representations received from the Directors,
 as on 31st March, 2011 and taken on record by the Board of Directors,
 we report that none of the Director is prima-facie disqualified as on
 above date from being appointed as a Director in terms of clause (g) of
 sub-sec- tion (1) of Section 274 of the Companies Act, 1956.
 
 f) Subject to our remarks in para 4 above, in our opinion and to the
 best of our information and according to the expla- nations given to
 us, the said accounts read together with the notes and significant
 accounting policies 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 ac- cepted
 in India:
 
 (i) In the case of the Balance Sheet, of the state of af- fairs of the
 Company as at 31st March, 2011;
 
 (ii) In the case of the Profit and Loss Account, of the loss of the
 Company for the period ended on that date, and
 
 (iii) In the case of the Cash Flow Statement, of the cash flows of the
 Company for the period ended on that date.
 
 ANNEXURE TO THE AUDITORS'' REPORT
 
 (Referred to in Paragraph 3 of our Report of even date on the Accounts
 of LML Limited for the year ended 31st March, 2011).
 
 1.  (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets, however these records are in process of updation.
 
 (b) As per the information and explanations given to us, the Company
 has formulated a programme of physical verifi- cation to cover all
 major categories of fixed assets over a period of three years.
 Accordingly some categories of the fixed assets have been physically
 verified during the pe- riod and no material discrepancies were noticed
 on such verification. In our opinion, the frequency of verification is
 reasonable, having regard to the size of the Company and nature of its
 business.
 
 (c) During the period, the Company has not disposed off sub- stantial
 part of the fixed assets. However, at the period end the management has
 determined the impairment loss on certain fixed assets amounting to Rs.
 435.37 lacs.
 
 2.  (a) The physical verification of inventories in Company''s custody
 was conducted by the management, wherever practi- cable, during or at
 the end of the period, in our opinion, is fairly reasonable. In case of
 materials lying with other par- ties are subject to confirmations.
 
 (b) The procedure of physical verification of inventories fol- lowed by
 the management is, in our opinion, reasonable in relation to the size
 of the Company and the nature of its business. As explained to us,
 Company is in process of restructuring/revival of its business under
 the aegis of BIFR which, inter alia, includes finalization of the
 product plan.  The process of possible utilization of slow/non-moving
 items of inventory will be undertaken upon finalization of the product
 plan and restructuring/revival plan. The requi- site accounting effect,
 if any, will be given upon such as- certainment / determination and
 approval of revival plan.
 
 (c) The Company is maintaining proper records of inventory.  In our
 opinion, the discrepancies noticed on physical veri- fication of stocks
 were not material in relation to the op- eration of the Company and the
 same have been properly dealt with in the books of account.
 
 3.  (a) As per the information furnished, the Company has not granted
 any loans, secured or unsecured, to companies, firms or other parties
 listed in the register maintained un- der section 301 of the Act.
 Accordingly, Clause 3 (b), (c) & (d) of the said order were not
 applicable.  
 
 (b) As per the information furnished, 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. Accord- ingly, Clause 3 (f) and (g) of the said Order is not
 appli- cable.
 
 4.  In our opinion and according to information and explanations given
 to us, there are adequate internal control procedures which are fairly
 commensurate with the size of the Company and the nature of its
 business with regard to purchase of inventory and fixed assets and for
 the sale of goods. During the course of our audit, we have not observed
 any continuing failure to correct major weakness in internal controls.
 
 5.  Based on the audit procedure applied by us and according to the
 information and explanations provided by the management, during the
 period, there has been no contract or arrangement that needed to be
 entered into the register maintained under section 301 of the Companies
 Act, 1956. Accordingly, Clause 4 (v)(b) of the said Order is not
 applicable.
 
 6.  The Company has not accepted or renewed any deposit during the
 period from the public within the meaning of the provisions of Section
 58A and 58AA or any other relevant provisions of the Companies Act,
 1956.
 
 7.  In our opinion and in accordance with the information and expla-
 nations provided by the management, the Company has an in- ternal audit
 system which is fairly commensurate with the size of the company and
 nature of its business.
 
 8.  We have broadly reviewed the cost records maintained by the Company
 under section 209(1)(d) of the Companies Act, 1956 for the period under
 review and are of the opinion that prima facie the prescribed accounts
 and records have been made and maintained for the two-wheeler unit. We
 have, however not made a detail examination of the same.
 
 9.  (a) According to the information and explanations given to us and
 the records examined by us, undisputed statutory dues including, income
 tax, sales tax, employees state insur- ance, provident fund, fringe
 benefit tax and other statutory dues applicable to it have not been
 regularly deposited with the appropriate authorities and there have
 been de- lays in a number of cases. According to information and
 explanations given to us, undisputed arrears of statutory dues
 outstanding as at 31st March, 2011 for a period of more than six months
 from the date they became payable, are as under : -
 
 Sl.  Name of the          Nature of Dues              Amount
 No.  Statute                                         (Rs. in 
                                                        Lakhs)
 
 1)   Provident Fund       Employer''s Contribution     142.71
 
                           Employees'' Contribution      42.34
 
 2)   Sales Tax                                       1072.73
 
 3)   Employees'' State 
      Insurance                                         23.52
 
 4)   Income Tax Act       Income Tax Deducted         135.36
                           at Source
                           Income Tax Collected          1.43
                           at Source
 
 5)   FBT                  FBT including interest      269.81
 
 6)   Professional Tax                                   0.59
 
 
 
 (b) Details of statutory dues not deposited on account of dispute(s)
 are as under :
 
 Sl.  Name of the           Nature of Dues                   Amount
 No.  Statute                                                (Rs.in
                                                              Lakhs)
 
 
 1    The Central Excise    Modvat credit, Duty on off-      414.00
      Act, 1944             cuts or Inputs, Valuation, 
                            Classification & Cenvat
 
 2    Central Sales         Non- submission of declara-    12221.72 
      Tax Act,1956,         tion forms, Entry tax, 
      Local Sales Tax       Penalty,Act Interest, 
      Act & Local Entry     Stock transfer and
      Tax                   Other issues
                        
 
 3    Customs Act,1962      (i) Duty dispute                 12.16
                            
                            (ii) Valuation & Concession      12.69
 
 4    Income-Tax Act,       Disallowances disputed in      3470.16
      1961                  ITAT
                            Disallowances disputed in       218.24
                            High Court
 
 
 Name of the Statute      Period          Forum Where Pending
 
 The Central Excise       1989-90 to      Commissioner Appeal,
 Act, 1944                2006-07         Tribunal (Cestat), 
                                          Supreme Court
 
 Central Sales            1989-90 to      Appellate Authority,
 Tax Act,1956             2006-07         Tribunal, High Court
 Local Sales Tax
 Act & Local Entry 
 Tax 
 
 Customs Act,1962         2001-02         Supreme Court
                          1986-87 &       Assistant
                          1994-95         Commissioner
 
 Income-Tax Act,          A.Y. 1997-98    ITAT 
    1961                  to 2000-01
                          A.Y. 1996-97    High Court
 
 
 
 10.  The accumulated losses of the Company as at 31st March, 2011 are
 more than fifty percent of its net worth at the end of the finan- cial
 period. The Company has incurred cash losses during the financial
 period and also in the immediately preceding financial year.
 
 11.  The Company has executed a Multi-Partite Agreement with Banks and
 Financial Institutions (Secured Lenders) on March 28, 2005.  Based on
 our audit procedures and the information and expla- nations given to
 us, the Company is in default in respect to the payments to the Secured
 Lenders as given below.
 
 Nature of the      Period of             Amount
 Dues               Default         Involved(Rs.)
 
 Principal          More than          454216391
                    18 months
 
 Interest           More than          323352425
                    18 months
 
 Principal          Dec-09              42921639
 
 Interest           Dec-09              39643217
 
 Principal          Mar-10              42921639
 
 Interest           Mar-10              40267873
 
 Principal          Jun-10              42921639
 
 Interest           Jun-10              42237743
 
 Principal          Sep-10              42921639
 
 Interest           Sep-10              44303137
 
 Principal          Dec-10              42921639
 
 Interest           Dec-10              45969455
 
 Principal          Mar-11              42921639
 
 Interest           Mar-11              46651571
 
 
 The Company is also in Default in the payments of Interest to Foreign
 Currency Convertible Bonds holders :
 
 Period of Default          Amount Involved (Rs.)
 
 More than 18 months        13969700
 
 12.  Based on our examination of records and information and ex-
 planations given 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.
 
 13.  As per the information and explanations given to us the provi-
 sions of any Special Statute applicable to Chit Fund do not ap- ply to
 the Company. The Company is also not a nidhi/mutual benefit
 fund/society.
 
 14.  In our opinion, and according to the information and explana-
 tions given to us, the Company is not dealing in or trading in shares,
 securities, debentures and other investments. Accord- ingly, the
 provisions of Clause 4(xiv) of the Companies (Audi- tors'' Report)
 Order, 2003 are not applicable to the Company.
 
 15.  Based on our examination of records and information and ex-
 planations given to us, the Company has not given any guaran- tee for
 loans taken by others from bank or financial institutions.
 
 16.  Based on our examination of the records and information and
 explanations given to us, no fresh term loan has been obtained by the
 Company during the period.
 
 17.  As per the information and explanations given to us and on an
 overall examination of the Balance Sheet of Company, we re- port that
 the Company has not used funds raised during the pe- riod on short-term
 basis for long term investment (application).
 
 18.  The Company has not made any preferential allotment of shares to
 parties and companies covered in the register maintained under section
 301 of the Act.
 
 19.  The Company has not issued any debentures during the period.
 
 20.  The Company has not raised any money by public issue during the
 period covered by our report.
 
 21.  Based on the audit procedures performed and the information and
 explanations given to us by the management, we report that no fraud on
 or by the Company was noticed or reported during the course of our
 audit.
 
 For KHANDELWAL JAIN & CO.                         For PARIKH & JAIN
 Chartered Accountants                         Chartered Accountants
 Firm Regn. No. 105049W                       Firm Regn. No. 001105C
  
 AKASH SHINGHAL                                             A K JAIN
 Partner                                                     Partner
 (M. No. 103490)                                     (M. No. 071253)
 
 Place : Gurgaon 
 Dated : 27th May, 2011