We have audited the attached Balance Sheet of MODERN THREADS (INDIA)
 LIMITED as at 31st March, 2012, Statement of Profit & Loss 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
 company''s management. Our responsibility is to express an opinion on
 these financial statements based on our audit.
 
 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 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.
 
 1.  As required by the Companies (Auditor''s Report) Order, 2003 issued
 by the Ministry Of Finance, Department Of Company Affairs in terms of
 Section 227(4A) of the Companies Act, 1956, we enclose in the annexure
 a statement on the matters specified in paragraph 4 & 5 of the said
 order.
 
 2.  Further to our comments in the annexure referred to in paragraph 1
 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 such
 books.
 
 c) The Balance Sheet, Statement of Profit & Loss and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account.
 
 d) In our opinion, the Balance Sheet, Statement of Profit & Loss and
 Cash Flow Statement dealt with by this report comply with accounting
 standards referred in Section 211(3C) of the Companies Act, 1956,
 except otherwise appearing in Notes on Financial Statements.
 
 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 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.
 
 f) In our opinion and to the best of our information and according to
 explanation given to us, said accounts read together with Significant
 Accounting Policies and Notes thereon and subject to:
 
 i) Dividend on cumulative redeemable preference shares amounting to Rs.
 140.37 lacs for the year (f 2246 lacs upto the period) have not been
 provided in view of accumulated losses.  (Note No. 1.7)
 
 ii) Provision of interest on certain unsecured loans/deposits amounting
 to Rs. 104.54 lacs has not been made as company expects waiver/reliefs.
 The total amount of interest not provided till 31st March 2012 amounts
 to Rs.652.76 lacs. (Note No.4.2 & 4.4)
 
 iii) Effect of change in foreign exchange rates prevailing at the year
 end on trade payables (under litigation) amounting to Rs. 127.82 lacs
 for the year (cumulative Rs. 333.14 lacs) have not been recognized as
 an expense.  (Note No.6.3)
 
 iv) Balances of trade payables and receivables are subject to
 confirmation and reconciliation, if any.  (Note No. 6.2 & 14.2)
 
 v) Impairment loss and impact of depletion in inventories of Threads
 Division if any, not ascertained due to seizure of entire plant and
 office block by Ajmer Vidyut Vitran Nigam Ltd. (Note No. 8.4 & 11).
 
 vi) The accounts of the company have been prepared on going concern
 basis though the Board for Industrial and Financial Reconstruction
 (BIFR) has declared the Company as a SICK Company.
 
 We further report that without considering items mentioned at para 2
 (f) (iv), (v) & (vi), the effect of which could not be determined, had
 the observations made by us in para 2 (f) (i), (ii) & (Hi) above been
 considered, the Profit for the year would have been Rs. 639.22lacs (as
 against the reported figures of'' Rs. 871.58 lacs), Reserves and Surplus
 would have been Rs. (28539.96) lacs (as against the reported figures of
 Rs. (25308.06) lacs), Trade Payables would have been Rs. 1893.39 lacs
 (as against reported figures Rs. 1560.25 lacs) and Other Current
 Liabilities would have been Rs. 6364.86 lacs (as against reported
 figures of  Rs. 3466.10 lacs).
 
 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 Balance Sheet of the state of affairs of the company
 as at 31st March, 2012 and
 
 (ii) In the case of Statement of Profit & Loss, of the Profit for the
 year ended on that date.
 
 (iii) In the case of Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITOR''S REPORT
 
 Refened to in paragraph 1 of Report of even date to the Members of
 MODERN
 
 THREADS (INDIA) LIMITED:
 
 (i) The Company has maintained proper records showing full particulars
 including quantitative details and situations of its fixed assets other
 than furniture and fixtures for which detailed records are not
 maintained. According to the information and explanations given to 
 us, the fixed assets were physically verified by the management except
 of Threads Division being under attachment by AWNL, at reasonable
 intervals during the year in accordance with a program of physical
 verification and no material discrepancies were noticed on such
 verification as compared to the available records. No substantial part
 of Fixed Assets have been disposed off during the year except certain
 discarded plant and machinery, furniture and vehicle and its not
 affecting going concern of the company.
 
 (ii) As explained to us, physical verification except of Threads
 Division of the Company being under attachment of AVVNL, has been
 conducted by the management at reasonable intervals in respect of
 inventories except stocks in transit and lying with third parties which
 have generally been confirmed. In our opinion and according to the
 information and explanations given to us, the procedures of physical
 verification of the stocks followed by the management are reasonable
 and adequate in relation to the size of the company and the nature of
 its business. According to the records produced to us for our
 verification, there were no material discrepancies noticed on physical
 verification of stocks as compared to book records and the same have
 been properly dealt within the books of accounts.
 
 (iii) The company has neither granted nor taken any loans, secured or
 unsecured to/ from companies, firms or other parties listed in the
 register maintained under Section 301 of the Companies Act 1956, during
 the year, hence clauses (iii) (a) to (iii) (g) of the Companies
 (Auditors Report) order, 2003 are not applicable.
 
 (iv) 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 nature of its business
 with regard to purchase of Inventory and Fixed Assets and for sale of
 goods and services. During the course our audit, we have not observed
 any continuing failure to correct the major weakness in internal
 control system.
 
 (v) In respect of transactions covered under section 301 of Companies
 Act, 1956:
 
 (a) In our opinion and according to the information and explanations
 given to us the particulars of contracts or agreements, that needs to
 be entered in to the register maintained U/s 301 of the Companies Act,
 1956, have been so entered.
 
 (b) According to the information and explanations given to us, the
 transactions made in pursuance of contracts and arrangements entered in
 the register maintained under Section 301 of the Companies Act, 1956
 have been made at prices which are reasonable having regard to
 prevailing market prices at the relevant time.
 
 (vi) As per information and explanations given to us, the company has
 not accepted fresh deposits during the year. In respect of deposits
 accepted in earlier years, the compliance with the provisions of
 Section 58A and 58AA of the Companies Act, 1956 and the rules framed
 there under are subject to order of Company Law Board Dated 17.04.2002
 ,that the repayment of fixed deposits shall be made by the Company in
 accordance with the revival scheme as and when approved by the BIFR
 under the Provisions of ''SICA''.  However the Company is making payment
 on compassionate grounds as per decisions of committee formed by the
 Company Law Board.
 
 (vii) In our opinion the company has an internal audit system,
 commensurate with the size and nature of its business.
 
 (viii) We have broadly reviewed the cost records maintained by the
 Company pursuant to Section 209 (1 )(d) of the Companies Act, 1956 and
 are of the opinion that prima-facie prescribed records have been
 maintained. We have not however, made a detailed examination of such
 records.
 
 (ix) In respect of statutory dues:
 
 a) The company is generally regular in depositing undisputed statutory
 dues including Provident fund, Investor Education & Protection Fund,
 ESI, Income Tax, Wealth Tax, Custom Duty, Excise Duty, Cess and any
 other statutory dues with the appropriate authority except the
 following pertaining to Threads Division, which are outstanding for
 more than 6 months:
 
 i) Central Sales Tax          Rs   13.05 Lacs
 
 ii) Rajasthan Sales Tax       Rs   79.44 Lacs
 
 iii) Textiles Committee Cess  Rs   15.20 Lacs 
 
 iv) Excise Duty               Rs   12.17 Lacs
 
 b) The disputed statutory dues, which have not been deposited on
 account of matters pending before appropriate authorities are as
 under:-
 
 ( Rs. in lacs)
 
 Name of statute         Nature of     Amount net   Forum where
                         dues          of advance   dispute is 
                                                    pending
 
 Central Sales Tax Act   Sales tax           0.78   DC (A), Ajmer
 
                         Sales tax         151.93   DC (A), Jaipur
 
                         Sales tax           2.23   CTO, Jaipur
 
 State Sales Tax Act     Sales tax          79.52   DC(A), Ajmer
                         (RST)
 
                         Sales tax           3.12   CTO, Jaipur
                         (RST)
 
                         Sales tax           0.67   Comm. Mirzapur
                         (UPST)
 
                         Sales tax           6.82   H C, Allahabad
                         (UPST)
 
                         Sales tax           0.07   DC(A), Mumbai
                         (BST)
 
 Central Excise Act      Excise duty        59.09   Commissioner
                                                    Appeals, Jaipur
 
                         Excise duty        16.05   CESTAT, Delhi
 
 Textile Committee Cess  TC Cess            19.08   Textile 
                                                    Commissioner
                                                    Delhi
 
 Raj. Land & Building    Land &              4.11   High Court, 
 tax Act                 Building Tax               Jaipur
 The Raj. Land Revenue   Land Tax            1.83   DJ, Bhilwara
 Act
       
                         Land Tax           14.50   High Court, 
                                                    Jaipur
 
 Employee State          ESI                28.09   High Court, 
 Insurance Act                                      Jodhpur
 
                         ESI                 7.07   Labour Tribunal,
                                                    Delhi
 
 Provident Fund Act      PF                  4.67   Commissioner, 
                                                    Jaipur
 
 The Rajasthan           Mandi Tax         396.25   The Rajasthan 
 Agriculture                                        High
 
 Product Markets Act                                Court Jaipur
 
 The Rajasthan Tax       Entry Tax          11.25   The Rajasthan 
 on Entry                                           High
 
 For goods in to                                    Court, Jaipur
 Local area Act
 
 
 (x) The accumulated losses of the company at the end of financial year
 are more than its net worth and it has not incurred cash losses during
 the financial year.
 
 (xi) The Company is now regular in repayment of its settled dues.
 
 (xii) As informed and explained to us the company has not granted any
 loan and advances on the basis of security by way of pledge of shares,
 Debentures and other securities during the year.
 
 (xiii) The company is not a Chit fund or a Nidhi/Mutual Benefit
 Fund/Society.  Accordingly the provisions of clause 4 (xiii) are not
 applicable to the company.
 
 (xiv) As informed to us the Company is not dealing/trading in
 securities, shares, debentures and other investments. Hence the
 provisions of clause 4 (xiv) are not applicable.  
 
 (xv) As informed and explained to us, the Company has not given any
 guarantee for loans taken by others from Bank or financial
 institutions.
 
 (xvi) The Company has not raised fresh Term Loans during the year.  
 
 (xvii) As informed and explained to us no fund raised on short term
 basis have been used for long term investments.  
 
 (xviii) As informed and explained to us, the company has not made
 Preferential allotment to the parties and companies covered in the
 Register maintained under section 301 of the Companies Act, 1956.
 (xix) As informed and explained to us the Company has created
 securities and charges in favour of assignee in respect of secured
 debentures assigned by financial institutions.  
 
 (xx) The company has not raised any money by way of public issue during
 the year.
 
 (xxi) As informed and explained to us no fraud on or by the company has
 been noticed or reported during the year.
 
                                                 For S.S.SURANA & CO.
 
                                               Chartered Accountants 
 
                                        Firm Registration No. 001079C
 
                                                           R N Goyal
                                                             Partner 
                                                Membership No. 70331
 
 Place: Mumbai 
 Date : 28th June, 2012