1.  We have audited the attached Balance Sheet of Panacea Biotec
 Limited (''the Company'') as at March 31, 2011 and also the Profit and
 Loss account 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.
 
 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 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.
 
 3.  As required by the Companies (Auditor''s Report) Order,2003 (as
 amended) 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.
 
 4.  Without qualifying our opinion, we draw attention to:
 
 a) Note 17 of Schedule XX-C to the financial statements regarding
 capitalization of expenditure on clinical trials amounting to Rs. 67.2
 million for year ended March 31, 2011 and Rs. 596.4 million as of March
 31, 2011. The ultimate approval of such products, which has been
 considered as highly likely by the management, is not within direct
 control of the Company. Pending such final approval, no adjustments
 have been made to the accompanying financial statements.
 
 b) Note 5 (b) of Schedule XX-C to the financial statements regarding
 the managerial remuneration of Rs.63 million for the financial year
 ending 31 st March 2009, which is in excess of the limits specified by
 the relevant provisions of the Companies Act, 1956, by Rs. 38.2
 million. The Company had already obtained approval from Central
 Government vide its letters dated December 23, 2009, February 15, 2011
 and February 18, 2011 in respect to excess remuneration paid amounting
 to Rs. 29.1 million and for the balance excess remuneration of Rs.  9.1
 million, requisite approval is awaited. Pending such final approval, no
 adjustments have been made to the accompanying financial statements.
 
 5.  Further to our comments in the annexure referred to in para 3
 above, we report that:
 
 i.  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;
 
 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,Profit and Loss Account and cash flow statement
 dealt with by this report are in agreement with the books of account;
 
 iv. in our opinion, the balance sheet, profit and loss account 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.
 
 v. on the basis of the written representations received from the
 directors, as on March 31,2011, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 March 31,2011 from being appointed as a director in terms of clause (g)
 of sub-section (1) of section 274 of the Companies Act, 1956.
 
 vi. in our opinion and to the best of our information and according to
 the explanations given to us, the said accounts 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 March 31,2011;
 
 b) in the case of the profit and loss account, of the profit for the
 year ended on that date; and
 
 c) in the case of cash flow statement, of the cash flows for the year
 ended on that date.
 
 Annexure referred to in paragraph [3] of our report of even date. Re:
 Panacea Biotec Limited
 
 i. a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 b) All fixed assets have not been physically verified by the management
 during the year but there is a regular program of verification, 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 in
 respect of the fixed assets physically verified during the year.
 
 c) There was no substantial disposal of fixed assets during the year.
 
 ii. a) The management has conducted physical verification of inventory
 at reasonable intervals during the year.
 
 b) The 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) The Company is maintaining proper records of inventory and no
 material discrepancies were noticed on physical verification carried
 out at the end of the year.
 
 iii. a) The Company has granted loan to one company covered in the
 register maintained under section 301 of the Companies Act, 1956. The
 maximum amount involved during the year was Rs. 771.1 million and the
 year- end balance of loans (including interest accrued) granted to the
 party was Rs. 490.4 million.
 
 b) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 such loans are not prima facie prejudicial to the interest of the
 Company.
 
 c) The loans granted are re-payable on demand. As informed, the company
 has not demanded repayment of any such loan during the year,thus, there
 has been no default on the part of the party to whom the money has been
 lent. The payment of interest for loans has been regular.
 
 d) There is no overdue amount of loans granted to company, firms or
 other parties listed in the register maintained under section 301 of
 the Companies Act, 1956.
 
 e) The Company has taken loan from one partnership firm covered in the
 register maintained under Section 301 of the Companies Act, 1956.The
 maximum amount involved during the year was Rs. 362 million and the
 year-end balance of loans taken from such parties was Rs. 360 million.
 
 f) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 such loans are not prima facie prejudicial to the interest of the
 Company.
 
 g) In respect of loans taken, repayment of the principal amount is as
 stipulated and payment of interest has been regular.
 
 iv.  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 the nature of its business, for the
 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 control system in respect of these areas.
 During the course of our audit, we have not observed any continuing
 failure to correct major weakness in internal control system of the
 company.
 
 v. a) Accordingtotheinformationandexplanationsprovided by the
 management, we are of the opinion that the particulars of contracts or
 arrangements referred to in section 301 of the Act 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 such contracts or
 arrangements exceeding value of Rupees five lakhs have been entered
 into during the financial year at prices which are reasonable having
 regard to the prevailing market prices at the relevant time.
 
 vi. In respect of deposits accepted, in our opinion and according to
 the information and explanations given to us, directives issued by the
 Reserve Bank of India and the provisions of sections 58A, 58AA or any
 other relevant provisions of the Companies Act, 1956 and the rules
 framed there under,to the extent applicable, have been complied with.We
 are informed by the management that no order has been passed by the
 Company Law Board, National Company Law Tribunal or Reserve Bank of
 India or any Court or any otherTribunal.
 
 vii. In our opinion, the Company has an internal audit system
 commensurate with the size of the Company and the nature of its
 business.
 
 viii. We have broadly reviewed the books of account 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 are of the opinion that prima facie, the prescribed
 accounts and records have been made and maintained.
 
 ix. a) Undisputed statutory dues including provident fund, employees''
 state insurance, investor education and protection fund, income-tax,
 sales-tax, wealth-tax, service tax, customs duty, excise duty, cess and
 other material statutory dues applicable to it have generally been
 regularly deposited with the appropriate authorities except for slight
 delay in few cases in Income tax where amount involved is not
 significant.
 
 Further, since the Central Government has till date not prescribed the
 amount of cess payable under section 441 A of the Companies Act, 1956,
 we are not in a position to comment upon the regularity or otherwise of
 the company in depositing the same.
 
 b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of provident fund, employees''
 state insurance, investor education and protection fund, income-tax,
 wealth-tax, service tax, sales-tax, customs duty, excise duty, cess and
 other material undisputed statutory dues were outstanding, at the year
 end, for a period of more than six months from the date they became
 payable.
 
 c) According to the records of the Company, the dues outstanding of
 income-tax, sales-tax, wealth-tax, service tax, customs duty, excise
 duty and cess on account of any dispute,are as follows:
 
 Nameofthe    Nature of dues    Amount  Period to which
                                               the       Forumwhere
 statute                       (Rs in
                               million)  amount relates  dispute is 
                                                         pending
 
 Income Tax 
 Act,         Income tax 
              Demand             27.5   Assessment Year  Appeal pending
 1961         raised by
              Assessing                     2003-04      with High Court
              Officer
 
 Income Tax 
 Act,         Demand 
              raised by           0.9   Assessment Year  Appeal pending
 1961         Assessing 
              Officer                      2005-06       with ITAT
 
 Income Tax
 Act,         Demand raised by    2.2   Assessment Year  Appeal pending
 1961         Assessing Officer            2006-07       with ITAT
 
 Income Tax
 Act,         Demand raised by    4.8   Assessment Year  Appeal pending
 1961         Assessing Officer            2007-08       with ITAT
 
 Income Tax
 Act,         Demand raised by    4.9   Assessment Year  Appeal pending
 1961         Assessing Officer            2008-09      with CIT(Appeals)
 
 The Finance 
 Act,         Service Tax
              Demand             50.0   Financial Year   Pending with
 1994         raised by
              Assessing                    2003-04to     CESTAT
              Officer                      2007-09
 
 The Finance 
 Act,         Service tax 
              Demand              2.1    Financial Year  Pending with
 1994         raised by
              Assessing                    2009-10      Assessing Officer
              Officer 
 
 Central 
 Excise Act,  Excise Duty 
              Demand              1.7    Financial Year  Pending with
 1944         raised by 
              Assessing                    2000-01 to    Assessing 
                                                         Officer
              Officer                      2001-02   
 
 x. The Company has no accumulated losses at the end of the financial
 year and it has not incurred cash losses in the current and immediately
 preceding financial year.
 
 xi. Based on our audit procedures and as per the information and
 explanations given by the management, we are of the opinion that the
 Company has not defaulted in repayment of dues to a financial
 institution or bank.
 
 xii. According to the information and explanations given to us and
 based on the documents and records produced 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.
 
 xiii. In our opinion, the Company is not a 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. According to the information and explanations given to us, the
 Company has not given any guarantee for loans taken by others from bank
 or financial institutions.
 
 xvi. Based on information and explanations given to us by the
 management, term loans were applied for the purpose for which the loans
 were obtained.
 
 xvii. According to the information and explanations given to us and on
 an 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.The Company has not made any preferential allotment of shares to
 parties or companies covered in the register maintained under section
 301 of the Companies Act, 1956.
 
 xix. The Company had unsecured ''Zero Coupon Convertible Bonds due
 2011''outstanding which have been redeemed during the year.
 
 xx. During the year under review, the Company has not raised any money
 through public issue, hence clause 4(xx) of the Companies (Auditor''s
 Report) Order, 2003 (as amended) is not applicable to the Company.
 
 xxi. 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 S.R.Batliboi& Co.
 
                                  Firm registration number: 301003E
 
                                              Chartered Accountants
 
                                                    per Rajiv Goyal
 
 New Delhi                                                  Partner
 
 May 13,2011                                  Membership No.: 94549