We have audited the attached Balance Sheet of Orissa Sponge Iron &
 Steel Limited as at March 31, 2012, and the Statement of Profit and
 Loss and 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.
 
 We have conducted our audit in accordance with the 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 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 the 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,(the
 Order) issued by the Central Government of India in terms of
 Sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose
 in the Annexure a statement on the matters specified in paragraphs 4
 and 5 of the said Order.
 
 2.  Further to our comments in the Annexure referred to 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 and Statement of Profit and Loss and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 (d) On the basis of written representations received from the directors
 of the Company, as on March 31, 2012, and taken on the records by the
 Board of Directors, we report that none of the director of the Company
 is disqualified as on March 31, 2012 from being appointed as a Director
 in terms of Section 274(1 )(g) of the Companies Act, 1956.
 
 Orissa Sponge Iron & Steel Limited
 
 3.  In our opinion and to the best of our information and according to
 the explanations given to us.
 
 a) The Balance Sheet and 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 Act to
 the extent applicable.
 
 b) The said accounts 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 March 31, 2012.
 
 (ii) In the case of the Statement of Profit and Loss, of the loss for
 the year ended on that date; and
 
 (iii) In the case of Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 With reference to the Annexure referred to in paragraph 1 of the
 Auditors'' Report to the members of Orissa Sponge Iron & Steel Limited
 (the Company) on the financial statements for the year ended 31 st
 March, 2012 we report that:
 
 1. (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of its fixed
 assets.
 
 (b) The Company has a regular programme of physical verification of its
 fixed assets, by which all fixed assets are verified in a phased manner
 over a period of three years. In our opinion this periodicity of
 physical verification is reasonable having regard to the size of the
 Company and the nature of its assets. Accordingly, certain fixed assets
 have been physically verified by the management during the current year
 and no material discrepancies were noticed upon such verification.
 
 (c) Fixed assets disposed off during the year were not substantial and
 therefore do not affect the going concern assumption.
 
 2. (a) The inventory of the Company has been '' physically verified by
 the management during the year. In our opinion the frequency of such
 physical verification is reasonable.
 
 (b) The procedures of physical verification of inventories followed by
 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 the opinion that the Company is maintaining proper records of
 inventory. The discrepancies noted on physical verification between the
 physical stocks and the book records were not material.
 
 3. According to the information and explanations given to us, the
 Company has not granted or taken any loans, secured or unsecured,
 to/from Companies, Firms or other parties in the register pursuant to
 the Section 301 of the Companies Act, 1956.
 
 4. In our opinion, and according to the information and explanations
 given to us, there is an adequate internal control system commensurate
 with the size of the Company and nature of its business with regard to
 purchases of inventory and fixed assets and with regard to sale of
 goods and services.
 
 5. (a) In our opinion and according to the information and explanations
 given to us, the particulars of contracts or arrangements referred to
 in Section 301 of the Companies Act, 1956 have been entered in the
 register required to be maintained under the section.
 
 (b) In our opinion, and according to the information and explanations
 given to us, the transactions made in pursuance of contracts and
 arrangements referred to in (a) above and exceeding the value of Rs. 5
 lacs with any party during the year 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 under the provisions of
 Section 58(A) and 58(AA) of the Act, and the Rules framed there under.
 
 7. In our opinion the Company has an Internal Audit System commensurate
 with the size and nature of the business.
 
 8. We have broadly reviewed the books of accounts maintained by the
 Company pursuant to the rules prescribed by the Central Government for
 maintenance of cost records under Section 209(1 )(d) of the Companies
 Act, 1956, and are of the opinion that prima facie, the prescribed
 accounts and records have been maintained. However we have not made a
 detailed examination of such records.
 
 9. (a) According to the information and explanations given to us and on
 the basis of our examination of the records of the Company, undisputed
 statutory dues including Provident Fund, Employees'' State Insurance,
 Income Tax, Sales Tax, Service tax, Customs duty, Excise duty, Cess and
 other material statutory dues are generally deposited during the year
 by the Company with the appropriate authorities. As explained to us,
 the Company does not have any dues on account of investor education and
 protection fund.
 
 Orissa Sponge Iron & Steel Limited
 
 (b) According to the information and explanations given to us, details
 of dues of Income Tax, Sales Tax, Service tax, Customs duty, Excise
 Duty and Cess which have not been deposited as at 31st March, 2012 on
 account of any dispute are given below:
 
 Name of the 
 statute      Nature of dues      Amount (Rs. in
                                  lacs)               Forum where
                                                      Dispute is pending
 
 Income Tax 
 Act, 1961    Tax Demand under 
              appeal                    3.27          Petition u/s 154
                                                      before
              for Assessment 
              Year 2006-2007                          Assessing Authority
 
 Central 
 Sales Tax 
 Act, 1956    Non-collection 
              of declaration 
              forms                 2,534.89          Sales Tax 
                                                      Appellate
                                                      Authorities
              and enhanced 
              assessment & 
              penalty    
 Orissa 
 Sales Tax 
 Act, 1947    Enhanced
              Assessment & 
              Penalty                 768.52           Sales Tax 
                                                       Appellate 
                                                       Authorities
 
 Central 
 Excise] 
 Act, 1944    Disputed 
              Central Excise 
              demand                  175.67           Commissioner of
                                                       Appeals,
                                                       Central Excise
 
 10. The Company has accumulated losses at the end of the financial year
 which are more than fifty percent of its net worth. It has incurred
 cash losses in the current financial year and the year immediately
 preceding financial year.
 
 11. The Company has defaulted in repayment of dues to its bankers and
 financial institutions as on 31st March, 2012 as detailed below : -
 
 Bank / Financial Institution     Amount of Default               
                                  (Rs. in lacs)         Default since
 
 Term Loan
 
 a) State Bank of India           2,015.00 Principal    January 2011
 
                                    606.85 Interest     April 2011
 
 b) State Bank of Bikaner 
    & Jaipur                        494.00 Principal    March 2011
 
                                    235.25 Interest     April 2011
 
 c) Punjab National Bank            152.06 Principal    October 2011
 
                                    199.94 Interest     August 2011
 
 d) Indian Renewable Energy 
    Development Agency Ltd. 
    (IREDA)                         572.65 Principal    June 2011
 
                                    505.03 Interest     June 2011
 
 Cash Credit
 
 (e) State Bank of India          3,818.81 Excess of 
                                           balance 
                                           outstanding  April 2011
                                           over Dra
                                           wing Power
 
 (f) State Bank of Bikaner 
     & Jaipur                       656.26 Excess of
                                           balance out
                                           standing     July 2011
                                           over Dra
                                           wing Power
 
 12. According to the information and explanations given to us, the
 Company has not granted loans and advances on the basis of security by
 way of pledge of shares, debentures and other securities.
 
 13. In our opinion and according to the information and explanations
 given to us the Company is not a chit fund/nidhi/mutual benefit
 fund/society.  Accordingly, the provisions of clause 4(xiii) of the
 Order are not applicable to the Company.
 
 14. According to the information and explanations given to us, the
 Company is not dealing in or trading in shares, securities, debentures
 and other investments,. Accordingly, the provisions of paragraph 4(xiv)
 of the Order are not applicable to the Company.
 
 15. According to the information and explanations given to us, the
 Company has given guarantee for loans taken by associated companies
 from banks or financial institutions, terms and conditions whereof are
 not prejudicial to the interest of the Company.
 
 16. In our opinion and according to the information and explanations
 given to us, the term loan taken by the Company during the year have
 been applied for the purpose for which it was raised.
 
 17. According to the information and explanations given to us and on an
 overall examination of the Balance Sheet of the Company, we are of the
 opinion that the funds raised during the year on short term basis have
 not been used for long term investment.
 
 18. 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 during the year.
 
 19. The Company has not raised any money by issue of shares during the
 year.
 
 20. According to the information and explanations given to us, the
 Company has not issued debentures during the year.
 
 21. According to the information and explanations given to us and to
 the best of our knowledge, no fraud on or by the Company was noticed
 and reported during the year.
 
                                               For L. N. More & Company
 
                                                  Chartered Accountants 
 
                                                            FRN 307042E
 
 
                                                             L. N. More
 
 Place: Kolkata                                                 Partner
 
 Dated: 4th August, 2012                          Membership No. 011485