1.  We have audited the attached Balance Sheet of MODERN DENIM LIMITED
 as at 31st March 2012, the Statement of Profit and Loss and also the
 Cash Flow Statement for the year ended on that date annexed thereto.
 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. These 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 also
 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 Company Law Board in terms of section 227 (4 A) of the Companies
 Act, 1956, we enclose in the Annexure a statement on the matters
 specified in paragraphs 4 & 5 of the said order.
 
 4.  Further to our comments in the Annexure referred to in paragraph 3
 above, we report that:
 
 (i) We have obtained all the information and explanations, which are to
 the best of our knowledge and belief, were necessary for the purpose of
 our audit;
 
 (ii) 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;
 
 (iii) The Balance Sheet, Statement of Profit and Loss and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 (iv) In our opinion the Balance Sheet, Statement of Profit and Loss and
 Cash Flow Statement dealt with by this report comply with the
 accounting standards referred to in sub section (3C) of section 211 of
 the Companies Act, 1956 except as stated at para (vi) below.
 
 (v) 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 31st March 2012 from being
 appointed as directors in terms of clause (g) of sub-section (1) of
 section 274 of the Companies Act 1956;
 
 (vi) We further report that:
 
 (a) Dividend for the year amounting to Rs. 110.75 lacs on cumulative
 redeemable preference shares has not been provided. The total amount of
 Dividend not provided till 31st March 2012 amounts to Rs. 1772.00 lacs.
 (Note No. 1.3)
 
 (b) Provision for interest on certain Secured and Unsecured Borrowings
 amounting to Rs. 231.67 lacs has not been made in accounts. The total
 amount of Interest not provided till 31st March 2012 amounts to Rs.
 1680.09 lacs. (Note No. 4.2, 4.3 & 4.10)
 
 (c) Compound interest, Penal and liquidated damages in respect of all
 borrowings have not been provided, amount of which is unascertainable,
 pending confirmations/ reconciliation. (Note No. 4.12)
 
 (d) Balances of Trade payables, Trade receivables, Advances and Loans
 etc. are subject to confirmation and reconciliation if any. (Note No.
 7.2 &12.2)
 
 (e) Amount paid towards restructuring/settlement to various secured
 lenders Rs. 2234.66 lacs has been shown under the head Loans &
 advances. Non-current Long Term Borrowings and Long-term Loans &
 advances are overstated to that extent. (Note No. 10)
 
 (f) The accounts of the Company have been prepared on a going concern
 basis though the Board for Industrial and Financial Reconstruction
 (BIFR) has declared the company as a sick company. (Note No. 27)
 
 (g) Provisions for impairment loss if any, has not been made, amount of
 which is unascertainable. (Note No. 31)
 
 (h) Pursuant to restructuring of some of the borrowings, the Company
 has taken credit of Rs. NIL to Statement of Profit and Loss as
 exceptional items during the year; pending fulfillment of future
 obligations. Total Credit taken by the Company upto 31st March 2012
 which are subject to fulfillment of future obligations amounts to Rs.
 12391.51 lacs.
 
 We further report that, without considering items mentioned at para
 (vi)(c), (vi)(d), (vi)(f) and (vi)(g) of para 4 above, the effect of
 which could not be determined, had the observations made by us in para
 (vi)(a), (vi)(b), (vi)(e) and (vi)(h) above been considered, the loss
 for the year would have been Rs. 102.32 lacs (as against the reported
 figure of profit of Rs. 129.35 Lacs), Long term borrowings would have
 been Rs. 4477.63 lacs (as against the reported figure of Rs. 6712.29
 lacs), Other current liabilities would have been Rs. 22061.95 lacs (as
 against the reported figure of Rs. 6218.35 lacs), Long term loans &
 advances would have been Rs. 185.08 lacs (as against the reported
 figure of Rs. 2419.74 lacs) and Debit balance of Reserves & Surplus
 would have been Rs. 31396.15 lacs (as against the reported figure of
 Rs. 15552.55 lacs).
 
 (vi) Subject to the above, 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 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 accepted in India:
 
 (i) In the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 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 for the
 year ended on that date.
 
                                            
 ANNEXURE TO THE AUDITORS'' REPORT
 
 Referred to in paragraph 3 of our Report of even date to the Members of
 MODERN DENIM LIMITED.
 
 1.  In respect of Fixed Assets:
 
 a.  The Company has maintained proper records showing full particulars
 including quantitative details and situation of Fixed Assets other than
 Furniture and Fixtures for which detailed records are not maintained.
 
 b.  As per the information and explanations given to us, the fixed
 assets were physically verified by the management at reasonable
 intervals during the year in accordance with a programme of physical
 verification and no material discrepancies were noticed on such
 verification as compared to the available records.
 
 c.  During the year, the Company has not disposed off any
 major/substantial part of the fixed assets.
 
 2.  In respect of its Inventories:
 
 a.  The inventory has been physically verified during the period by the
 management. In our opinion, the frequency of verification is
 reasonable.
 
 b.  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 inventory, we are
 of opinion that the Company is maintaining proper records of inventory.
 The discrepancies noticed on verification between the physical stocks
 and books records were not material.
 
 3.  In respect of loans, secured or unsecured, granted or taken by the
 company to/ from companies, firms or other parties covered in the
 register maintained under section 301 of the Companies Act, 1956.
 
 a.  The Company has not granted any loans, secured or unsecured, to the
 companies, firms or other parties covered in the register, maintained
 under section 301 of the Companies Act, 1956, and therefore the clauses
 (iii)(a), (iii)(b), (iii)(c) and (iii)(d) of The Companies (Auditor''s
 Report) Order, 2003 are not applicable.
 
 b.  The Company has not taken any loans, secured or unsecured, from the
 companies, firms or other parties covered in the register, maintained
 under section 301 of the Companies Act, 1956, and therefore the clauses
 (iii)(e), (iii)(f) and (iii)(g) of The Companies (Auditor''s Report)
 Order, 2003 are not applicable.
 
 4.  In our opinion and according to the information and explanations
 given to us, 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, fixed assets and with
 regard to the sale of goods. During the course of our audit, no major
 weakness has been noticed in the internal controls.
 
 5.  In respect of transactions covered under Section 301 of the
 Companies Act, 1956:
 
 a.  Based on the audit procedures applied by us and according to the
 information and explanations provided by management, we are of the
 opinion that the contracts or arrangements that need to be entered into
 the register maintained under section 301 have been so entered.
 
 b.  In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements entered in the registers maintained under section 301 in
 respect of any of the parties during the year have been made at prices
 which are reasonable having regard to prevailing market prices at the
 relevant time.
 
 6.  The Company has not accepted any fresh deposits during the year. As
 per the information and explanations given to us, in respect of
 deposits accepted in earlier years, the compliance with the provisions
 of Section 58A 58AA or any other relevant provisions of Companies Act,
 1956 and rules framed there under are subject to the order passed by
 the Company Law Board on 21/12/2001 whereby the Company is required to
 make repayment of deposits and payment of interest thereon in
 accordance with the revival scheme to be approved by the Board for
 Industrial and Financial Reconstruction (BIFR) under the provisions of
 Sick Industrial Companies (Special Provisions) Act, 1985.
 
 7.  In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 8.  We have broadly reviewed the books of account relating to
 materials, labour and other items of cost maintained by the Company
 pursuant to the rules made by the Central Government for the
 maintenance of cost records under Section 209 (1) (d) of the Companies
 Act, 1956 and we are of the opinion that prima facie the prescribed
 accounts and records have been made and maintained,
 
 9.  In respect of statutory dues:
 
 a.  According to the records of the Company, the Company is regular in
 depositing with appropriate authorities undisputed statutory dues
 including provident funds, employee''s state insurance, income tax,
 sales tax, wealth tax, custom duty, excise duty, cess and other
 statutory dues applicable to it.
 
 b.  According to the information and explanations given to us, no
 undisputed amounts payable in respect of income tax, wealth tax,
 service tax, customs duty, sales tax and excise duty were outstanding
 as at 31st March, 2012 for a period of more than six months from the
 date they became payable.
 
 c.  According to the records of the Company, the dues of excise duty
 and income tax, which have not been deposited on account of disputes
 and the forum where the dispute is pending, are as under:
 
 Name of the        Nature of     Amount    Forum where dispute
 Statute the        Dues         (Rs. In    is pending
                                   lacs)
 
 The Central        Excise duty     0.34    The Central Excise and
 Excise Act, 1944   Penalty        24.42    Service Tax Appellate
                                            Tribunal (Ahmedabad) 
 
 The Central        Excise duty     0.91    The Central Excise and
 Excise Act, 1944   Penalty        15.82    Service Tax Appellate
                                            Tribunal (Ahmedabad) 
 
 Income Tax         Penalty       128.09    The Commissioner of
 Income Tax,                                Jaipur 
 
 Total                            169.58
 
 10.  The accumulated losses of the Company as at 31st March, 2012 are
 more than fifty percent of its net worth. The Company has earned cash
 profit during the financial year under review and during the immediate
 preceding financial year.
 
 11.  The Company has defaulted in repayment of installments of dues to
 Financial Institutions, Banks and Debenture holders amounting to Rs.
 4749.30 lacs since 1997.
 
 12.  Based on our examination of documents and records and 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.
 
 13.  The provisions of any special statute applicable to Chit Fund,
 Nidhi or Mutual benefit Fund/Societies are not applicable to the
 Company.
 
 14.  The Company is not dealing or trading in shares, securities,
 debentures or other investments and hence, the requirements of para 4
 (xiv) are not applicable to the Company.
 
 15.  As per the information provided to us, the Company has not given
 any guarantee for loans taken by others from bank or financial
 institutions.
 
 16.  The Company has not taken any fresh term loan during the year
 under review.
 
 17.  The Company has not raised any short term funds during the year
 under review.
 
 18.  During the year, 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.
 
 19.  As per the information given to us, the Company has created
 security in respect of debentures issued in earlier years except for
 the cases where debentures trust deeds are yet to be executed.
 
 20.  During the year, the Company has not raised any money by way of
 public issues.
 
 21.  Based upon the audit procedures performed, 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 J. T. SHAH & COMPANY
                                                CHARTERED ACCOUNTANTS 
                                      (Firm Registration No. I09616W)
 
                                                         (J. T. SHAH)
                                                              PARTNER
                                                (Membership No. 3983)
 
 Place: Ahmedabad 
 Date: 30th June, 2012