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Auditor's Report (MMTC Ltd)	Year End : Mar '12

1. We have audited the attached Balance Sheet of MMTC Limited as at March 31, 2012, the Statement of Profit and Loss and the Cash Flow Statement for the year ended on that date, both annexed thereto in which are incorporated the accounts of Corporate Office, Mica Division, Jhandewalan Regional Office and Sub-Regional Offices which are under Jhandewalan Regional Office audited by us and the other Regional Offices and Sub-Regional Offices audited by the other Auditors. 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 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 the 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) and read together with the Companies (Auditor''s Report) Order, 2004 (hereinafter referred to as the order) 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 of the records of the Company as we considered appropriate and according to the information and explanations given to us, we give 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 in paragraph (3) above, we report as follows: - (i) Non-provision of liability, if any, in case of extension of time / waiver / write off of GR-1 forms. (Refer note no. 23) (ii) Balances under Sundry Debtors/claims Recoverable / Loans & Advances / Sundry Creditors / Other Liabilities have not been confirmed in some cases by the parties. Adjustments, if any, required upon such confirmation are not ascertainable. (Refer note no. 39) (iii) Our observations in respect of the inadequacies in the internal control systems, as stated in para (iv) of Annexure to main audit report, which may have consequential effect on the accounts for the year. (Effect not ascertainable). (iv) Attention is invited to an ad-hoc provision of Rs. 1002.05 million made on account of certain acts of commission & omission pertaining to recoverable from debtors at Regional Office Chennai. (Refer note no. 17) 5. We further report that: - (a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit except as otherwise stated in report; (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; (c) Proper returns, adequate for the purpose of our audit have been received from Regional Offices, Sub Regional Offices and Branches not audited by us. Reports of Regional Auditors have been considered while preparing our report; (d) The Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of accounts and with the audited returns from the Regional Offices; (e) In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211 (3C) of the Companies Act, 1956; (f) Being a Government Company, pursuant to the gazette notification No.GSR 829 (E) dated 21-10-2003 issued by Government of India, provisions of clause (g) of sub-section (1) of section 274 of the companies Act 1956 are not applicable to the company. 6. We further report that, the impact of paragraphs 4(i) to 4(iii) above on the profit of the year and the assets and liabilities appearing in the Balance Sheet, could not be ascertained. 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 Significant Accounting Policies and notes thereon, give the information required by the Companies Act, 1956 in the manner so required, other than as stated above, 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 March 31, 2012; (ii) In the case of the Statement of Profit and Loss, 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. Annexure to the Auditors'' Report Referred to in paragraph 3 of the Auditor''s Report of even date to the members of MMTC Limited on the financial statements for the year ended March 31, 2012. (i) In respect of fixed assets: (a) The Company has generally maintained proper records showing full particulars including quantitative details and situation of the fixed assets. (b) As explained to us, all the fixed assets have been physically verified by the Management during the year; which, in our opinion is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification. (c) In our opinion and according to the information and explanations given to us, no substantial part of the fixed assets has been disposed off by the Company during the year and therefore the going concern assumption is not affected. (ii) In respect of its inventories: (a) As explained to us, the inventories excepting in case of goods in transit, stocks lying in Central / State Warehouses (where confirmation were obtained from the parties and relied upon) were physically verified during the year by the Management at reasonable intervals. (b) In our opinion, procedures of physical verification of inventory 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 records of the inventory, in our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stock and the books of account were not material except in the case of inventory of pulses at Regional Office Mumbai which has been properly dealt with in the books of account. (iii) In respect of loans: (a) As informed to us, the Company has not granted any loans, secured or unsecured to Companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.In view of this, sub clauses (b),(c) and (d) of clause (iii) are not applicable. (b) As informed to us, 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. In view of this, sub clauses (e), (f) and (g) of clause (iii) 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 for the purchase of inventory, fixed assets and for the sale of goods & services. However, there is inadequate internal control systems in-regard to obtaining confirmation / reconciliation of outstanding balances, accounting of tax deducted at source on payments made by other parties. Further, on the basis of our examination and according to the information and explanations given to us, we have come across instances where there is total lack of internal control system particularly at Regional Office Chennai, Regional Office Hyderabad and Jhandewalan Regional Office in areas of obtaining bank balance confirmation, confirmations of FDR / BG, procedure / system for obtaining buyer''s credit, forward cover. Further, the internal control mechanism needs to be strengthened, besides the areas mentioned hereinbefore, in the following areas: (a) Risk management particularly of foreign exchange exposure and its subsequent documentation / record keeping and also time-to-time monitoring of the risk to the company. (b) Periodic quantitative reconciliation of goods traded by the company (particularly bullion) between the ERP and other standalone inventory system. (c) Active and prompt follow-up of old debts, advances, claims, court cases and recoveries etc arising out of execution of decrees/awards in favor of the company, by respective Commodity Division. (v) (a) In our opinion and according to the information and explanations given to us, there are no contracts and arrangements referred to in Section 301 of the Companies Act 1956, particulars of which need to be entered into a register maintained under Section 301 of the Act. (b) Accordingly the provisions of the clause V (b) of paragraph 4 of the order (as amended) are not applicable to the company (vi) The directives issued by the Reserve Bank of India and the provisions of Section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed there-under have been complied with, in respect of deposits accepted from the Public. We have been informed that, no order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any other Court or Tribunal in this regard. (vii) The Company has an internal audit system, which in our opinion is commensurate with the size of the Company and nature of its business. However, keeping in view our observations regarding inadequacies in internal control systems, the internal audit system needs to be revamped, strengthened and its effectiveness be enhanced. (viii) As informed to us, the maintenance of cost records under Section 209 (1) (d) of the Companies Act, 1956 has not been prescribed by the Central Government. (ix) (a) According to the information and explanations given to us and the records as produced and examined by us, in our opinion, 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, customs duty, Excise Duty, Cess and other material statutory dues as applicable with the appropriate authorities and that no undisputed amounts payable in respect of the same were in arrears as at 31-03-2012 for a period of more than six months from the date they became payable. (b) According to the information and explanation given to us and the records of the Company examined by us, the particulars of dues of income tax / sales tax / wealth tax / service tax / custom duty / excise duty / cess (as applicable) as at March 31, 2012 which have not been deposited on account of any dispute, are referred to in Annexure ''A'' (x) The Company does not have any accumulated losses and has not incurred cash losses in the current financial year and in the immediately preceding financial year. (xi) According to the records of the Company examined by us and as per the information and explanations given to us, the Company has not defaulted in repayment of dues to any financial institution or bank or debenture holders during the year. (xii) According to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities; except certain loans to employees who have been granted on the basis of security of house and vehicles and in this regard proper documents & records are maintained. In respect of loans to its employees other than those as stated already, are granted without any security. (xiii) In our opinion, the company is not chit fund or a Nidhi / Mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company. (xiv) 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 Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company. (xv) In our opinion and according to the information and explanations given to us the terms & conditions of the guarantee given by the company for loans taken by Neelachal Ispat Nigam Limited (an associate Company) from banks or financial institutions are not prima- facie prejudicial to the interest of the Company. (xvi) According to the information and explanation given to us, the Company has not taken any term loans during the year. Hence, the provisions of clause 4(xvi) of the Companies (Auditor''s Report) Order 2003 (as amended) are not applicable to the Company. (xvii) According to the information and explanations given to us and overall examination of the Balance Sheet of the company, we report that no funds raised on short-term basis have been used for long-term investment. (xviii) According to the information and explanations given to us, 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) According to the information and explanations given to us, during the year covered by our audit report, the Company has not issued any debentures during the year and hence, the provision of clause No. 4(xix) of the Companies (Auditor''s Report) Order 2003 (as amended) is not applicable to the Company. (xx) The Company has not raised any money by way of Public Issue during the year; therefore the provision of clause 4(xx) of the Companies (Auditor''s Report) Order 2003 (as amended) is not applicable to the Company. (xxi) During the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have come across following instances of material fraud on the Company during the year, as reported by the Management:- (a) Regional Office, Chennai Certain acts of commission & omission relating to bullion transactions pertaining to previous years were reported resulting into amounts recoverable from Debtors of Rs. 1002.05 million which were lying in the vendors account as at March 31, 2011 against which full provision has been created in the current year. The company has ordered a special audit into these transactions which is yet to be completed. In this connection, upon a complaint filed by the Company, CBI has registered two separate FIRs and has started detailed investigation also, Directorate of Enforcement have registered an offence under Prevention of Money Laundering Act 2002. (Refer Note no. 17) (b) Regional Office, Mumbai A foreign supplier has submitted forged shipping documents, through banking channels, to obtain payment of Rs. 28.30 million without making delivery. However, the company has obtained an interim stay from the Court restraining the bank from making the payment under the letter of credit. The same supplier is also fraudulently holding on to the master bill of lading which would enable the RO to take delivery and possession of goods valued at Rs. 64.57 million, already paid for and received at the Indian port. (Refer to note no. 40) (c) Regional Office, Hyderabad The company has received fake bills of lading covering two shipments of copper valued at Rs. 37.50 million against which no material was received. The foreign supplier has been paid in full through letter of credit after the company had received full payment from the customer. The company is in the process of initiating legal action against the foreign supplier. (Refer note no. 41) (d) Regional Office, Jhandewalan One of the customer who was given gold on loan has committed fraud on the company by providing fake bank guarantees amounting to Rs. 18.0 million against which full provision has been made. The case is under investigation upon filing of an FIR by the company with the Delhi Police. (Refer note no. 42) ANNEXURE ''A'' TO AUDITORS'' REPORT Referred to in paragraph 9(b) of Annexure, a statement on the matters specified in the Companies (Auditors Report) Order, 2003 (as amended) of MMTC Limited for the year ended on 31st March 2012. According to the records of the company dues of Income Tax, Sales Tax, Custom Duty, Excise Duty and Cess which have not been deposited on account of disputes are stated below: CHENNAI REGIONAL OFFICE Name of the Statue Nature of the dues Amount (In Rs.) Period Forum of Dispute TNGST ACT Sales Tax, Penalty 8,63,114 1998-99 High Court & Interest TNGST ACT Sales Tax, Penalty 4,43,416 2000-01 Sales Tax Appeals & Interest Tribunal TNGST ACT Sales Tax, Penalty 11,52,785 1999-2000 High Court & Interest TNGST ACT Sales Tax, Penalty 1,78,536 2001-02 Asst. Commissioner & Interest (Comm. Tax), Chennai MUMBAI REGIONAL OFFICE Name of the Statue Nature of the dues Amount (In Rs.) Period Forum of Dispute BST ACT Sales Tax 3,08,644 1986-87 Joint Comm. of Sales Tax BST ACT Sales Tax 5,19,887 1987-88 Joint Comm. of Sales Tax BST ACT Sales Tax 1,33,907 1988-89 Joint Comm. of Sales Tax BST ACT Sales Tax 14,96,06,778 1989-90 MST Tribunal BST ACT Sales Tax 23,30,46,478 1990-91 Dy. Comm., Sales Tax BST ACT Sales Tax 28,98,738 1991-92 Dy. Comm., Sales Tax BST ACT Sales Tax 11,14,933 1992-93 MST Tribunal BST ACT Sales Tax 45,03,961 2001-02 Dy. Comm., Sales Tax Central Excise Act Service Tax 1,14,38,000 2008-09 Comm. Central Excise & Customs DELHI REGIONAL OFFICE Name of the Statue Nature of the dues Amount (In Rs.) Period Forum of Dispute Delhi Sales Tax Sales Tax 11,65,303 1984-85 D.C. appeal Delhi Sales Tax Sales Tax 6,18,17,683 1986-87 Addl. Commissioner Central Sales Tax Sales Tax 39,14,524 1986-87 Addl. Commissioner Delhi Sales Tax Sales Tax 4,03,31,557 1987-88 Addl. Commissioner Central Sales Tax Sales Tax 28,54,992 1987-88 Addl. Commissioner Delhi Sales Tax Sales Tax 369,45,148 1988-89 Addl. Commissioner Central Sales Tax Sales Tax 33,51,524 1988-89 Addl. Commissioner Delhi Sales Tax Sales Tax 16,35,160 1987-88 Joint Commissioner HYDERABAD REGIONAL OFFICE Name of the Statue Nature of the Amount (In Period Forum of Dispute dues Rs.) APGST Sales Tax 1,49,770 1989-90 STAT APGST Sales Tax 29,61,551 1990-91 STAT, Vizag APGST Sales Tax 24,02,576 1991-92 STAT, Vizag APGST Sales Tax 13,96,269 1992-93 STAT, Vizag APGST Sales Tax 17,62,687 1992-93 STAT, Vizag APGST Sales Tax 6,30,615 1993-94 STAT, Vizag CST Central Sales 4,41,34476 1993-94 ADC (CT) Tax CST Central Sales 2,04,481 1994-95 AC(LTU) Tax CST Central Sales 5,97,266 1995-96 ADC (CT) Tax APGST Sales Tax 38,03,875 1995-96 STAT, Vizag APGST Sales Tax 28,80,309 1995-96 STAT, Vizag CST Central Sales 21,34,306 1996-97 STAT, Vizag Tax APGST Sales Tax 58,43,100 1997-98 STAT, Vizag CST Central Sales 6,35,504 1997-98 ADC (CT) Tax APGST Sales Tax 55,65,147 1998-99 STAT, Vizag APGST Sales Tax 39,04,454 1999-2000 STAT, Vizag APGST Sales Tax 2,52,926 2000-2001 STAT, Vizag APGST Sales Tax 2,12,176 2001-02 AC(LTU) APGST Sales Tax 68,901 2002-03 AC(LTU) APGST Sales Tax 34,856 2003-04 AC(LTU) APGST Sales Tax 1,26,000 2004-05 AC(LTU ) VAT VAT 6,76,058 2006-07 STAT VAT VAT 71,000 2007-08 AC(LTU) VAT VAT 5,00,000 2008-09 STAT, Vizag VAT VAT 11,90,100 2008-09 STAT, Vizag Central Excise & Custom Duty 24,11,17,719 2008-09 Commissioner of Customs Customs & Central Excise BHUBANESHWAR REGIONAL OFFICE Name of the Statue Nature of the dues Amount (In Period Forum of Dispute Rs.) Orissa Sales Tax Interest Penalty 9,58,035 1966-67 High Court of Orissa Orissa Sales Tax Interest Penalty 26,50,388 1978-79 High Court of Orissa Orissa Sales Tax Interest Penalty 6,53,452 1979-80 High Court Of Orissa Orissa Sales Tax CST 33,04,073 1981-82 High Court Of Orissa Orissa Sales Tax Orissa Sales Tax 78,46,464 1982-83 High Court Of Orissa Orissa Sales Tax Orissa Sales Tax 3,16,921 1982-83 High Court Of Orissa Orissa Sales Tax Central Sales Tax 34,83,020 1982-83 -- do --- Orissa Sales Tax Interest 2,62,819 1982-83 -- do --- Orissa Sales Tax Orissa Sales Tax 79,13,807 1983-84 -- do --- Orissa Sales Tax Orissa Sales Tax 3,29,926 1983-84 -- do --- Orissa Sales Tax Orissa Sales Tax 35,42,822 1983-84 -- do --- Orissa Sales Tax Orissa Sales Tax 86,48,326 1984-85 -- do --- Orissa Sales Tax Orissa Sales Tax 3,69,294 1984-85 -- do --- Orissa Sales Tax Central Sales Tax 57,96,808 1984-85 -- do --- Orissa Sales Tax Interest 3,57,42,030 1978-79 -- do --- Orissa Sales Tax Orissa Sales Tax 21,17,92,315 2010-11 Appeal before Commissioner of Sales Tax, Cuttack Central Excise Act Service Tax 7,27,02,132 2003-06 Customs, Excise & Service Tax Appellate Tribunal Central Excise Act Service Tax 13,08,31,221 2003-07 Customs, Excise & Service Tax Appellate Tribunal Central Excise Act Service Tax 2,539,812,711 2007-08 Customs, Excise & Service Tax Appellate Tribunal Central Excise Act Service Tax 5,80,77,352 2008-10 Customs, Excise & Service Tax Appellate Tribunal Central Excise Act Service Tax 4,48,93,394 2010-11 Customs, Excise & Service Tax Appellate Tribunal JAIPUR REGIONAL OFFICE Name of the Statue Nature of the dues Amount (In Rs.) Period Forum of Dispute R.S.T ACT Sales Tax 1,28,87,058/- 2003-04 Rajasthan Tax Board (Rs 298 7058 deposited under protest) R.S.T ACT Sales Tax 5,32,992/- 2003-04 Rajasthan Tax Board (Rs 53300 deposited under protest) R.S.T ACT Sales Tax 26,07,605/- 1999-00 Rajasthan Tax Board RAJ VAT ACT VAT ACT 326,47,269/- 2010-11 DC(Appeals) CST ACT CST Act 59,92,494/- 2010-11 DC(Appeals) VIZAG REGIONAL OFFICE Name of the Statue Nature of the dues Amount (In Rs.) Period Forum of Dispute A.P.G.S.T ACT Sales Tax 18,56,325 1968-69 A.P. High Court A.P.G.S.T ACT Sales Tax 26,39,647 1981-82 ADC, Vizag A.P.G.S.T ACT Sales Tax 6,88,552 1982-83 ADC, Vizag A.P.G.S.T ACT Sales Tax 17,66,784 1983-84 ADC A.P.G.S.T ACT Sales Tax 30,00,436 1984-85 ADC A.P.G.S.T ACT Sales Tax 25,05,806 1985-86 STAT,HYD A.P.G.S.T ACT Sales Tax 2,70,83,841 1986-87 STAT, Hyderabad A.P.G.S.T ACT Sales Tax 36,45,076 1987-88 ADC A.P.G.S.T ACT Sales Tax 19,34,139 1991-92 STAT,HYD A.P.G.S.T ACT Sales Tax 4,79,000 1989-90 A.P. High Court CST Sales Tax 8,41,695 1994-95 STAT, Hyderabad CST Sales Tax 48,62,340 1995-96 STAT, Hyderabad CST Sales Tax 33,58,889 1996-97 STAT, Hyderabad A.P.G.S.T ACT Sales Tax 25,27,960 1997-98 STAT, Hyderabad CST Sales Tax 28,07,578 1997-98 STAT, Hyderabad CST Sales Tax 104,614 2007-08 STAT, Hyderabad Central Excise & Service Tax 12,65,26,554 2003 -2006 Customs, Excise & Customs Service Tax Appellate Tribunal, Bangalore KOLKATA REGIONAL OFFICE Name of the Statue Nature of the dues Amount (In Rs.) Period Forum of Dispute WBST ACT 1994 --do-- 86,88,778 1996-97 Sales Tax Tribunal WBST ACT 1994 --do-- 33,74,028 1997-98 Appellate Board WBST ACT 1994 --do-- 37,11,769 1998-99 Sales Tax Tribunal CST ACT 1956 Sales Tax 11,30,858 2005-06 Appellate Board CST ACT 1956 Sales Tax 77,60,971 2006-07 DC Appeal WB VAT ACT VAT 8,28,126 2008-09 DC Appeal CST ACT 1956 Sales Tax 2,05,9794 2008-09 DC Appeal JHANDEWALAN REGIONAL OFFICE Name of the Statue Nature of the dues Amount (In Period Forum of Dispute Rs.) Delhi VAT CST/LST/ Interest/ Penalty 4,90,85,551 1997-98 Appellate Tribunal (Gold commemorative VAT, Delhi Medallions) 37,45,290 2002-03 Commissioner, DVAT UP-VAT VAT Interest for non- 2,88,866 1995-96 Allahabad High Court submission of Form - 3B 6,11,808 1996-97 Allahabad High Court (Gold) & Non-submission of Form 2,49,828 2007-08 Commissioner, UP-VAT 3C1 (Mentha Oil) Customs Customs Duty & Interest 2,72,67,919 1999-2000 Delhi High Court Department, Delhi on non- export of Gold Jewellery against gold loan taken by associates Date: 28th August, 2012 For JAIN KAPILA ASSOCIATES CHARTERED ACCOUNTANTS Place: New Delhi Firm Registration No. 000287N D.K. Kapila Sr. Partner M. No. 016905

Source : Dion Global Solutions Limited

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