1.  We have audited the attached Balance Sheet of THE PHOENIX MILLS
 LIMITED as at 31st March, 2011, 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 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 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 Central Government of India in terms of Section 227(4A) of the
 Companies Act, 1956, we enclose in the Annexure a statement on the
 matters specifed in paragraphs 4 and 5 of the said Order, to the extent
 applicable to the Company.
 
 4.  Further to our comments in the Annexure referred to in paragraph 3
 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, the company has kept proper books of account as
 required by law so far as appears from our examination of those books.
 
 c) The Balance Sheet, the profit and Loss Account and the Cash fow
 Statement dealt with by this report are in agreement with the books of
 accounts.
 
 d) In our opinion, the Balance Sheet, the profit and Loss Account and
 the Cash Flow Statement dealt by this report are in compliance with the
 mandatory Accounting Standards referred to in Section 211(3C) of the
 Companies Act, 1956.
 
 e) On the basis of the written representations received from the
 directors as on 31st March 2011 and taken on record by the Board of
 Directors, we report that none of the directors are disqualifed as on
 31st March 2011 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
 the explanations given to us, the said accounts read together with the
 significant accounting policies and other 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, 2011 ;
 
 ii) In the case of the profit and Loss Account, 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 Auditors'' Report
 (Referred to in Paragraph 3 of our report of even date)
 
 1.  In respect of its Fixed Assets: -
 
 a ) The Company has maintained proper records showing the par ticulars
 and situation of its fixed assets.
 
 b) According to the information and explanations given to us, the fixed
 assets were physically verifed by the management in accordance with the
 phased programme of verifcation, which in our opinion, is reasonable
 having regard to the size of the Company and nature of its assets. The
 discrepancies noticed on physical verifcation were not material and
 have been properly dealt with in the books of accounts.
 
 c) During the year, the Company has not disposed off any substantial
 part of the fixed assets.
 
 2.  In respect of its inventories:
 
 a) According to the information and explanations given to us, the
 stocks of fnished goods have been physically verifed by the management
 during the year. In our opinion, the frequency of verifcation is
 reasonable. The company did not have any stocks at the end of the year.
 
 b) According to the information and explanations given to us, in our
 opinion, the procedures for the physical verifcation of stocks 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. The
 discrepancies noticed on verifcation between the physical stocks and
 book records were not material, having regard to the size of the
 operations of the Company.
 
 3.  In respect of loans, secured or unsecured, granted or taken by the
 company to/from companies, forms or parties covered in the register
 maintained under section 301 of the Companies Act, 1956: -
 
 a) The Company has granted interest-free unsecured loans to three
 wholly owned subsidiaries and interest-bearing unsecured loans to one
 subsidiary and three other companies covered in the Register maintained
 under section 301 of the Companies Act, 1956.  In respect of the said
 loans, the maximum amount outstanding at any time during the year is Rs.
 2,366,286,959 and the year-end balance is Rs. 1,847,840,057.
 
 b) In our opinion and according to the information and explanations
 given to us, the terms and conditions of such loans given, including
 interest thereon, wherever applicable, to the subsidiaries and the
 other companies, covered in the Register maintained under section 301
 of the Companies Act, 1956 are not prima facie prejudicial to the
 interest of the Company.
 
 c) As per the information and explanation given to us, the principal
 amounts and interest, wherever applicable, of the said loans are
 repayable on demand and there is no repayment schedule. Therefore, the
 question of overdue amounts does not arise.
 
 d) The Company has not taken loans from any parties listed in the
 Register maintained under 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 the nature of its business for the
 purchase of inventory and fixed assets and also for the sale of goods
 and services. During the course of our audit, we have not observed any
 continuing failure to correct major weaknesses in the internal control
 systems in respect of the above areas.
 
 5.  In respect of transactions covered under section 301 of the
 Companies Act, 1956, in our opinion and according to the information
 and explanations given to us;
 
 a) The transactions made in pursuance of contracts or arrangements,
 that needed to be entered in the register maintained under section 301
 of the Companies Act, 1956 have been so entered.
 
 b) These transactions have been made at prices which are comparable to
 similar transactions entered into with other parties.
 
 6.  According to the information and explanations given to us, the
 company has not accepted any deposits from the public during the year.
 Therefore the provisions of clause (vi) of paragraph 4 of the order are
 not applicable to the company.
 
 7.  In our opinion, the company has an internal audit system
 commensurate with the size of the Company and the nature of its
 business.
 
 8.  As per the information and explanations given to us, the Central
 Government has not prescribed the maintenance of cost records under
 section 209(1)(d) of the Companies Act, 1956 in respect of the business
 activities conducted by the company during the year.
 
 9.  a) As per the information and explanations given to us, the company
 has generally been regular in depositing the undisputed statutory dues
 including Provident Fund, Employee''s State
 
 Insurance, Income Tax and Sales Tax with the appropriate authorities
 and there were no undisputed amounts payable in respect of such dues
 which have remained outstanding as at 31st March, 2011 for a period of
 more than six months from the date they became payable. In respect of
 the service tax liabilities, as given in Note No – B (4) of Schedule
 R, we are unable to comment, as the matter is subjudice.
 
 b) The disputed statutory dues aggregating to Rs. 9,873,314 that have not
 been deposited on account of the matters pending before the appropriate
 authorities are as under:- 
 
 Name of the                  Income Tax              Central Excise
 Statute                      Act 1961                Act 1944
 
 Nature of Dues               Income Tax              Excise Duty
 
 Amount Rs.                     8,227,088               1,646,226
 
 Period to which              2001-02 to              1986-87 to
 
 the amount                   2007-08                 1992-93
 
 relates
 
 Forum where                  CIT (Appeals)           Commissioner
 
 dispute is                                          (Appeals) – As
 
 pending                                              directed by CEGAT
 
 10.  The Company does not have accumulated losses at the end of the
 financial year. The company has not incurred cash losses in the financial
 year under report as well as in the immediately preceding financial
 year.
 
 11.  Based on our audit procedures and explanations given to us, the
 company has not defaulted in repayment of dues to financial
 Institutions/banks.  The company has not borrowed any funds by way of
 issue of debentures.
 
 12.  In our opinion and according to the information and explanations
 given to us, the company has not granted loans/advances on the basis of
 security by way of pledge of shares, debentures and other securities
 and therefore, the provisions of the clause (xii) of paragraph 4 of the
 Order are not applicable.
 
 13.  In our opinion, the Company is not a chit fund / nidhi / mutual
 benefit fund / society. Therefore, the provisions of clause (xiii) of
 paragraph 4 of the Order are not applicable to the Company.
 
 14.  The company has maintained proper records of the transactions and
 contracts in respect of dealing in shares, securities and other
 investments and timely entries have been made therein. All shares,
 securities and other investments have been held by the Company in its
 own name except securities pledged with the banks/ financial
 institutions.
 
 15.  As at the end of the year, the company has not given any guarantee
 for loans taken by others. The guarantees given by the company in the
 previous financial years for the loan taken by its subsidiary has been
 released during the year. According to the information and explanations
 given to us, we are of the opinion that the terms and conditions of the
 said guarantee were prima facie not prejudicial to the interest of the
 company.
 
 16.  The Company has not raised new terms loans during the year. The
 term loans outstanding at the beginning of the year have prima facie,
 been applied for the purposes for which they were obtained.
 
 17.  According to the information and explanations given to us, and the
 records examined by us, the funds raised on short term basis have prima
 facie, not been used during the year for long term investments.
 
 18.  The company has not made any preferential allotment of shares,
 during the year, to parties and companies covered in the Register
 maintained under section 301 of the Companies Act, 1956.
 
 19.  The company has not issued any debentures.  Therefore, the
 provisions of clause (xix) of paragraph 4 of the Order are not
 applicable to the Company.
 
 20.  In an earlier financial year, the company had raised money by way
 of placement of equity shares to qualified institutions. The balance
 unutilized money as at the beginning of the year has been fully
 utilized during the year. The company has not raised any money by
 public issues, during the year.
 
 21.  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 have not
 come across any instance of material fraud on or by the Company, noted
 or reported during the course of our audit.
 
 
 For A. M. Ghelani & Company                   For Chaturvedi & Shah
 
 Chartered Accountants                         Chartered Accountants
 
 FRN :103173W                                          FRN : 101720W
 
 Chintan A. Ghelani                                  Amit Chaturvedi
 
 Partner                                                     Partner
 
 Membership No: 104391                         Membership No: 103141
 
 Place: Pune
 
 Date: 30th July, 2011