Mawana Sugar

1. We have audited the attached balance sheet of Mawana Sugars Limited
 as at September 30, 2006 and also the profit and loss account and the
 cash flow statement for the year ended on that date. 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.
 
 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 misstatements. 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 (Auditors Report) Order, 2003 issued
 by the Central Government of India in terms of sub-section (4A) of
 Section 227 of the Companies Act, 1956, we annex hereto 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 in paragraph 3
 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, profit and 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 referred to in sub-section (30 of section 211 of the
 Companies Act, 1956;
 
 e) on the basis of written representations received from the directors
 and taken on record by the Board of Directors, we report that none of
 the directors is disqualified as on September 30, 2006 from being
 appointed as a director in terms of clause (g) of sub-section (1) of
 section 274 of the Companies Act, 1956;
 
 f) in our opinion and to the best of our information and according to
 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:
 
 (i) in the case of the balance sheet, of the state of affairs of the
 Company as at September 30, 2006;
 
 (ii) in the case of the profit and loss account, of the profit of the
 Company, for the year ended on that date; and
 
 (iii) in the case of the cash flow statement, of the cash flows of the
 Company for the year ended on that date.
 
                                                 For A.F. FERGUSON & CO.
                                                   Chartered Accountants
 Place : New Delhi                                       MANJULA BANERJI
 Date : November 13, 2006                          Membership No. 086423
                                                                 Partner
 
 ANNEXURE REFERRED TO IN PARAGRAPH `3 OF THE AUDITORS REPORT TO THE
 MEMBERS OF MAWANA SUGARS LIMITED ON THE ACCOUNTS FOR THE YEAR ENDED
 SEPTEMBER 30, 2006
 
 i) (a) The Company is maintaining proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 (b) As explained to us, the Company has a programme of physically
 verifying all its fixed assets once in a period of three years, and in
 accordance therewith, some of the fixed assets were physically verified
 by the management during the current year. In our opinion, the
 frequency of physical verification is reasonable having regard to the
 size of the Company and the nature of its fixed assets. The
 discrepancies noticed on such verification were not material and have
 been properly dealt with in the books of account.
 
 (c) In our opinion and according to the information and explanations
 given to us, a substantial part of fixed assets has not been disposed
 off by the Company during the year.
 
 ii) (a) During the year, the inventories have been physically verified
 by the management. In our opinion, the frequency of verification is
 reasonable.
 
 (b) In our opinion and according to the information and explanations
 given to us, 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 inventories, in
 our opinion, the Company has maintained proper records of inventories.
 The discrepancies noticed on physical verification of inventories as
 compared to book records were not material and have been properly dealt
 with in the books of account.
 
 iii) According to the information and explanations given to us, the
 Company has during the year, granted interest free loan to a wholly
 owned subsidiary company aggregating Rs. 99.99 millions. The maximum
 amount due during the year and the year end balance of loan is Rs.
 99.99 millions and Rs. Nil respectively.
 
 In our opinion, and having regard to these being granted to wholly
 owned subsidiary company the terms on which the said loan was made by
 the Company is not prejudicial to the interest of the Company. Further,
 the said loan has been received back during the year ended September
 30, 2006.
 
 According to the information and explanations given to us, the Company
 has, during the year, 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. Accordingly, paragraphs
 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, there are adequate internal control systems commensurate
 with the size of the Company and the nature of its business with regard
 to purchases of inventories and fixed assets and with regard to the
 sale of goods. There is no sale of services during the year. Further,
 on the basis of our examination and according to the information and
 explanations given to us, no major weaknesses in the aforesaid internal
 control systems have been noticed.
 
 v) According to the information and explanations given to us and having
 regard to the view taken by the Company that the transactions, which
 are subjected to the provisions of sub-section 6 of section 299 of the
 Companies Act, 1956 (the Act), are not required to be entered in the
 register maintained in pursuance of section 301 of the Act, there were
 no transactions during the year that were required to be entered in
 this register.
 
 Notwithstanding the Companys view regarding the provisions of
 sub-section 6 of section 299 of the Act in respect of certain
 transactions, exceeding the value of Rs. 5 lacs entered into during the
 year with parties listed under the provisions of sub-section 3 of
 section 301 of the Act, these have been made at prices which are
 reasonable having regard to prevailing market prices at the relevant
 time except in the case of items stated to be of specialized nature for
 which, as informed, there are no alternate sources of supply to enable
 a comparison of the prices paid/charged.
 
 vi) According to the information and explanations given to us, the
 Company has not accepted any deposits from the public. Accordingly,
 paragraph 4(vi) of the Order is not applicable.
 
 vii) In our opinion, the Company has an adequate internal audit system
 commensurate with the size and nature of its business.
 
 viii) We have broadly reviewed the books of account maintained by the
 Company in respect of products where pursuant to the Rules made by the
 Central Government, the maintenance of cost records has been prescribed
 under section 209(1) (d) of the Act, and are of the opinion that, prima
 facie, the prescribed accounts and records have been made and
 maintained. We have not, however, made a detailed examination of the
 records with a view to determine whether they are accurate or complete.
 
 ix) (a) According to the information and explanations given to us and
 the records of the Company examined by us, the Company has been regular
 in depositing undisputed statutory dues including investor education
 and protection fund, entry tax, purchase tax, service tax, income-tax,
 sales tax, wealth tax, customs duty, cess and other material statutory
 dues applicable to it with the appropriate authorities except for tax
 deducted at source, provident fund and excise duty where there have
 been few delays in depositing these with the appropriate authorities.
 We are informed that there are no undisputed statutory dues as at the
 year end outstanding for a period of more than six months from the date
 they became payable.
 
 (b) According to the information and explanations given to us and the
 records of the Company examined by us, there are no disputed dues of
 income tax, customs duty, wealth tax, cess, and service tax matters as
 at September 30, 2006.
 
 The details of dues of sales tax and excise duty as at September 30,
 2006 which have not been deposited on account of disputes are as
 follows:-
 
 S. Name of           Nature of    Amount        Amount paid
 No the Statute       the dues    (Rs. in      under protest
                                Millions)  (Rs. in Millions)
 
 1. Sales Tax Laws    Sales tax      1.30                  -
 
                                     0.56               0.22
 
                                     2.18                  -
 
 2. Central Excise    Excise Duty    0.15                  -
 
 Laws                                6.59                  -
 
                                     0.43                  -
 
                                     2.38                  -
 
 S. Name of              Period to which    Forum where dispute is
 No the Statute       the amount relates    pending
                          (various years
 
 covering the period)
 
 1. Sales Tax Laws               2000-01    Supreme Court
 
                                 2001-02    Trade Tax Tribunal
 
                             2004-05 and    Assistant
                                 2005-06    Commissioner
 
 2. Central Excise               1990-00    High Court
 
 Laws                         1997-98 to    Customs Excise and Service
                                1999-00,    Tax Appellate
 
                              2001-02 to    Tribunal
                                2003-04,    (CESTAT)
 
                                 2005-06
 
                                 2001-01    Commissioner (Appeals)
                                1994-95,    Assistant Commissioner
                                1995-96,
                                1996-97,
                             2000-01 and
                                 2004-05
 
 x) As the Company was incorporated on December 26, 2002, paragraph 4(x)
 of the Order is not applicable.
 
 xi) According to the records of the Company examined by us and the
 information and explanations given to us, the Company during the year
 has not defaulted in repayment of dues to financial institutions and
 banks. The Company has not issued debentures during the year.
 
 xii) As the Company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities, paragraph 4(xii) of the Order is not applicable.
 
 xiii) The provisions of any special statute as specified under
 paragraph 4(xiii) of the Order are not applicable to the Company.
 
 xiv) As the Company is not dealing or trading in shares, securities,
 debentures and other investments, paragraph 4(xiv) of the Order is not
 applicable.
 
 xv) According to the information and explanations given to us, the
 Company has not given any guarantees during the year for loans taken by
 others from banks or financial institutions.
 
 xvi) In our opinion and according to the information and explanations
 given to us, the term loans that have been obtained for various
 expansion projects have been applied for the purposes for which they
 were obtained except that in the ongoing construction phase, funds,
 pending utilization in the expansion projects amounting to Rs. 562
 Millions as at September 30, 2006 have been temporarily invested in
 fixed deposits with banks.
 
 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 during the year short term funds have not been used to finance
 long term investments.
 
 xviii) According to the information and explanations given to us, the
 Company has not made any preferential allotment of shares during the
 year.
 
 xix) During the year, since the Company has not issued any debentures,
 paragraph 4(xix) of the Order is not applicable.
 
 xx) During the year, the Company has not raised money by way of public
 issue, paragraph 4(xx) of the Order is not applicable.
 
 xxi) Based upon the audit procedures performed and 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 the year ended September 30, 2006.
 
                                                 For A.F. FERGUSON & CO.
                                                   Chartered Accountants
 Place ; New Delhi                                       MANJULA BANERJI
 Date : November 13, 2006                          Membership No. 086423
                                                                 Partner