Mercator Lines

1.  We have audited the attached Balance Sheet of MERCATOR LINES
 LIMITED as at 31st March 2008, the related Profit and Loss Account and
 the Cash Flow Statement of the Company 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.
 
 2.  We conducted our audit in accordance with auditing standards
 generally accepted in India. These 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 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 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 information 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.
 
 4.  Further to our comments in the Annexure referred to in above
 paragraph, 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 the
 books of the Company;
 
 c) The Balance Sheet, Profit and Loss Account and the Cash Flow
 Statement dealt with by the report are in agreement with the books of
 account of the Company;
 
 d) In our opinion, the Balance Sheet, Profit and Loss Account and the
 Cash Flow Statement comply with the mandatory Accounting Standards
 referred to in Section 211 (3C) of the Companies Act, 1956.
 
 d) On the basis of written representations received from the
 
 directors of the Company as on 31st March 2008, and taken on record by
 the Board of Directors, we report that none of the directors is
 disqualified as on 31st March 2008, from being appointed as a director
 in terms of Section 274(1) (g) of the Companies Act, 1956.
 
 f) In our opinion and to the best of our information and
 
 according to the explanations given to us, the said accounts read
 together with the Notes to Accounts in Schedule I 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 2008;
 
 b.  In the case of the Profit and Loss Account, of the Profit for the
 year ended on that date,
 
 c.  In the case of the Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 Statement referred to in paragraph 3 of the Auditors Report of even
 date to the Members of MERCATOR LINES LIMITED on the accounts for the
 year ended 31st March 2008.
 
 On the basis of such checks as considered appropriate and in terms of
 the information and explanations given to us, we state as under:
 
 1(a) The company has maintained proper records showing full particulars
 including quantitative details and situation of the fixed assets;
 
 1(b) As explained to us, the management at reasonable intervals carries
 out the physical verification of the fixed assets. The discrepancies
 noticed on such verification, which were not material, have been
 appropriately dealt with in the accounts
 
 1(c) The fixed assets disposed off by the company were not substantial
 and does not affect the going concern assumption.
 
 2(a) As explained to us, the inventories of bunker and lube have been
 physically verified during the year by the management.  In our opinion,
 having regard to the nature and location of stocks, the frequency of
 the physical verification is reasonable.
 
 2(b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of the above
 mentioned inventory followed by the management are reasonable and
 adequate in relation to the size of the Company and the nature of its
 business.
 
 2(c) In our opinion, the Company is maintaining proper records of
 inventory and no material discrepancies were noticed on physical
 verification.
 
 3(a) As per the information and explanations given to us, the Company
 has granted unsecured loans to 6 parties covered in the register
 maintained under section 301 of the Companies Act, 1956. The
 outstanding balance as on 31st March 2008 is Rs. 43,103.40 Lacs and
 maximum balance outstanding during the year is 61,428.28 lacs.
 
 3(b) In case of the aforesaid unsecured loans granted to the parties
 covered in the register maintained under Section 301 of the Companies
 Act, 1956, looking to the long term involvement of the company in the
 subsidiaries and their businesses, the rate of interest and the other
 terms and conditions are not prima-facie prejudicial to the interests
 of the Company.
 
 3(c) In case of the aforesaid unsecured loan granted to the parties
 covered in the register maintained under Section 301 of the Companies
 Act, 1956, the repayment of principal amount and interest, where
 applicable is regular.
 
 3(d) In case of the aforesaid unsecured loans granted to the parties
 covered in the register maintained under Section 301 of the Companies
 Act, 1956, the company is taking reasonable steps for the timely
 recovery of the principal and interest.
 
 3(e) As per the information and explanations given to us, the Company
 has not taken unsecured loans from a Company or any other party covered
 in the register maintained under section 301 of the Companies Act,
 1956, the provisions of Clause 3(f) and 3(g) are not applicable.
 
 4 In our opinion and as explained to us, there are adequate
 
 internal control procedures 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 and services. During the course
 of our audit, no major weakness has been noticed in the internal
 controls and there is no continuing failure for the same.
 
 5(a) Based on the audit procedures applied by us and according to the
 information and explanations provided by the management, we are of the
 opinion that the particulars of contracts or arrangements referred to
 in section 301 of the Companies Act, 1956 have been entered in register
 required to be maintained under that section.
 
 5(b) In our opinion and as explained to us, the transactions made in
 pursuance of such contracts or arrangements have been made at prices
 which are reasonable having regard to the prevailing market prices at
 the relevant time.
 
 6 The Company has not accepted any deposits from public during the year
 
 7 In our opinion, the Company has an internal audit system commensurate
 with the size of the Company and the nature of its business.
 
 8 The maintenance of cost records has not been prescribed by the
 Central Government under section 209 (1) (d) of the Companies act,
 1956.
 
 9(a) According to the information and explanations given to us and the
 records examined by us, the Company is regular in depositing with
 appropriate authorities undisputed statutory dues including provident
 fund, investor education and protection fund, employees state
 insurance, income-tax, sales-tax, wealth-tax, service tax, custom duty,
 excise-duty, cess and other statutory dues and there are no undisputed
 statutory dues outstanding as at 31st March 2008, for a period of more
 than six months from the date they became payable.
 
 9(b) According to the information and explanations given to us, there
 are no dues of income-tax, sales tax, wealth tax, service tax, custom
 duty, excise duty and cess which have not been deposited on account of
 any dispute.
 
 10 The company does not have any accumulated losses as on 31st March
 2008 and has not incurred any cash losses during the financial year and
 in the immediately preceding financial year.
 
 11 Based on the information and explanations given to us, the Company
 has not defaulted in repayment of any dues to financial institutions
 and banks.
 
 12 Based on our examination of the records and as explained to us, the
 Company has not granted any loans and/or advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 
 13 In our opinion, the company is not a chit fund, nidhi/mutual benefit
 fund/society. The provisions of clause 4(xiii) are therefore not
 applicable to the company.
 
 14 During the year, the Company does not have any transactions in
 respect of dealing and trading in shares, securities, debentures and
 other investments. All shares, debentures and other investments held by
 the company are held by the Company in its own name.
 
 15 According to the information and explanations given to us, the terms
 and conditions on which the Company has given guarantees for loans
 taken by subsidiaries and others from banks and financial institutions
 are, considering the long term involvement of the company in these
 entities, not prejudicial to the interests of the company.
 
 16 According to the information and explanations given to us, the term
 loans raised were used for the purpose for which they were raised.
 
 17 As explained to us and on an overall examination of the balance
 sheet of the Company, in our opinion there are no funds raised on
 short-term basis which have been used for long-term investment by the
 Company.
 
 18 According to the information and explanation given to us, the
 Company has made preferential allotment of shares/warrants to parties
 covered in the register maintained under section 301 of the Companies
 Act, 1956 at prices not prejudicial to the interests of the company.
 
 19 During the period covered by our audit report the Company has issued
 unsecured debentures and there is no question of creating any security
 for the same.
 
 20 The Company has not raised any money by public issues during the
 period covered by our report.
 
 21 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 and on behalf of
                                         Contractor Nayak & Kishnadwala
                                                  Chartered Accountants
 
                                                      H. V. Kishnadwala
                                                            Partner,
                                                    Membership No 37391
 
 Mumbai
 14th May 2008