Reliance Communications

We have audited the attached Balance Sheet of Reliance Communications
 Limited (‘the Company’) as at 31 March 2008 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.
 
 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.
 
 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 (‘the Act’),
 we enclose in the Annexure, a statement on the matters specified in
 paragraphs 4 and 5 of the said Order.
 
 Further to our comments in the Annexure referred to in the paragraph
 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, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 (d) 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;
 
 (e) on the basis of written representations received from the directors
 of the Company as at 31st March 2008 and taken on record by the Board
 of Directors, we report that none of the directors is disqualified as
 at 31st March 2008 from being appointed as a director of the Company
 under clause (g) of sub-section (1) of Section 274 of the Companies
 Act, 1956; and
 
 (f) 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:
 
 (i) in the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March 2008;
 
 (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 of the
 Company for the year ended on that date.
 
 Annexure to the Auditors’ Report – 31st March 2008
 
 With reference to the Annexure referred to in the Auditors’ Report to
 the Members of Reliance Communications Limited (‘the Company’) on the
 financial statements for the year ended 31st March 2008, we report the
 following:
 
 1.  (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets which are being updated to give effect to the assets transferred
 on demerger of the passive infrastructure and the network fiber
 undertaking, acquired from a wholly owned subsidiary company during the
 year.
 
 (b) We are informed that the Company physically verifies its assets
 over a three year period, except for underground fibre infrastructure
 and base trans-receiver station towers.  We are informed that these
 assets are under continuous operational surveillance at National
 Network Operating Centre and are therefore not separately physically
 verified.  In our opinion, this periodicity of physical verification is
 reasonable having regard to the size of the Company and the nature of
 its assets. In accordance with this policy, the Company has physically
 verified certain fixed assets during the year. The Company is in the
 process of reconciling the results of such physical verification with
 the fixed assets register. Management believes that differences if any,
 arising out of such reconciliation are not expected to be material.
 
 (c) Passive infrastructure assets demerged to a subsidiary company
 during the year, as per the scheme sanctioned by the High Court, does
 not affect the going concern assumption.
 
 2.  (a) The inventory has been physically verified by management during
 the current year. In our opinion, the frequency of such verification is
 reasonable.
 
 (b) The procedures for the 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) The Company is maintaining proper records of inventory.
 Discrepancies identified on physical verification of inventories as
 compared to book records were not material.
 
 3.  The Company has neither granted nor taken any loans, secured or
 unsecured, to or from companies, firms or other parties covered in the
 register maintained under section 301 of the Companies Act, 1956.
 Accordingly, paragraph 4(iii) of the Order is not applicable.
 
 4.  In our opinion, and according to the information and explanations
 given to us, and having regard to the explanation that purchases of
 certain items of inventories and fixed assets are for the Company’s
 specialised requirements for which suitable alternative sources are not
 available to obtain comparable quotations, there is an adequate
 internal control system commensurate with the size of the Company and
 nature of its business with regard to the purchase of inventories and
 fixed assets and with regard to the sale of services. In our opinion,
 and according to the information and explanations given to us, there is
 no continuing failure to correct major weaknesses in the internal
 control system.
 
 5.  In our opinion, and according to the information and explanations
 given to us, there are no contracts and arrangements the particulars of
 which need to be entered into the register maintained under section 301
 of the Companies Act, 1956.
 
 6.  The Company has not accepted any deposits from the public.
 
 7.  In our opinion, the Company has the internal audit system
 commensurate with the size and nature of its business.
 
 8.  We have broadly reviewed the books of account 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 in respect of telecommunication activities and are of the
 opinion that prima facie, the prescribed accounts and records have been
 made and maintained. However, we have not made a detailed examination
 of the 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, amounts
 deducted/accrued in the books of account in respect of undisputed
 statutory dues including Provident Fund, Wealth Tax, Income Tax,
 Service Tax, Customs Duty, Sales Tax, Entry Tax, Employees’ State
 Insurance and other material statutory dues have been regularly
 deposited during the year by the Company with the appropriate
 authorities. As explained to us, the Company did not have any dues on
 account of Excise duty and Investor Education and Protection Fund.
 
 There were no dues on account of cess under Section 441A of the
 Companies Act, 1956 since the date from which the aforesaid section
 comes into force has not yet been notified by the Central Government.
 According to the information and explanations given to us, no
 undisputed amounts payable in respect of Provident Fund, Wealth Tax,
 Income Tax, Ser vice Tax, Customs Duty, Sales Tax, Entry Tax,
 Employees’ State Insurance and other material statutory dues were in
 arrears as at 31st March 2008 for a period of more than six months from
 the date they became payable.
 
 (b) According to the information and explanations given to us, there
 are no dues of Income Tax, Wealth Tax, Service Tax, Customs duty,
 Employees’ State Insurance which have not been deposited on account of
 any dispute.  The dues of Excise duty, Sales Ta x and Entry Tax as
 disclosed below have not been deposited by the Company on account of
 disputes.
 
 Name of the                     Statute          Nature of Amount
                                 the Dues        (Rs. in crore)
 
 The Central Excise and
 Salt Act, 1944                  Excise duty            2.08
 
 Entry Tax Act, Uttar Pradesh    Entry tax              0.13
 
 Trade Tax Act, Uttar Pradesh    Sales tax              1.12
 
                                                       10.53
 
                                                        0.24
 
 Entry Ta x Act, Madhya Pradesh  Entry tax              0.36
 
 Entry Tax Act, Chhattisgarh     Entry tax              0.12
 
 Sales Tax Act, Orissa           Sales tax              4.12
 
 Entry Tax Act, Orissa           Entry tax              0.02
 
                                 Entry tax              0.02
 
 Entry Tax Act, Jharkand         Entry tax              4.84
 
 Punjab VAT Act                  VAT                    0.03
 
                                 VAT                    0.01
 
 Entry Tax Act, Madhya Pradesh
 (Commercial Taxes)              Entry Tax              0.24
 
 Entry Tax Act, Chhattisgarh
 (Commercial Taxes)              Entry tax              0.03
 
 Period to which        Forum where
 the amount relates     dispute is pending
 
 2002-04                Tribunal
 
 2003-04                Trade Tax Tribunal, Lucknow
 
 2004-05                Trade Tax Tribunal, (Appeals)
 
 2005-06                Joint Commissioner, (Appeals)
 
 2003-04                Trade Tax Tribunal, Lucknow
 
 2002-03                Deputy Commissioner of
                        Appeals (Commercial Taxes)
 
 2002-03                Deputy Commissioner of
                        Appeals (Commercial Taxes)
 
 2003-04                Asst. Commissioner of
                        Commercial Taxes, Bhubaneshwar
 
 2003-04                Asst. Commissioner of
                        Commercial Taxes, Bhubaneshwar
 
 2004-05                Asst. Commissioner of
                        Commercial Taxes, Bhubaneshwar
 
 2007-08                Writ petition filed before
                        High Court of Jharkand
 
 2007-08                Deputy Commissioner, (Appeals)
                        Deputy Commissioner, (Appeals)
 
 2003-04                Deputy Commissioner (Appeals)
 
 2003-04                Deputy Commissioner (Appeals)
 
 10.  The Company does not have any accumulated losses at the end of the
 financial year and has not incurred cash losses in the current
 financial year and in the immediately preceding financial period.
 
 11.  In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to its
 bankers or debenture holders or to any financial institutions.
 
 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.
 
 14.  According to the information and explanations given to us, the
 Company is not dealing or trading in shares, securities, debentures and
 other investments.
 
 15.  In our opinion and according to the information and explanations
 given to us, the terms and conditions on which the Company has given
 guarantees for loans taken by wholly owned subsidiaries from banks or
 financial institutions 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 loans taken by the Company have been applied for
 the purpose for which they were 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 on short-term basis have not been
 used for long-term investment.
 
 18.  The Company has not made any preferential allotment of shares to
 companies/firms/parties covered in the register maintained under
 Section 301 of the Companies Act, 1956.
 
 19.  The Company has not issued any secured debentures during the year.
 
 20.  We have verified the end-use of money remaining unutilised in the
 previous period raised by issue of foreign currency convertible bonds
 as disclosed in note 2 (iii) of Schedule Q to the financial statements.
 
 21.  According to the information and explanations given to us, no
 significant fraud on or by the Company, that causes a material
 misstatement to the financial statements, has been noticed or reported
 during the year.
 
 For Chaturvedi & Shah                    For BSR & Co.
 Chartered Accountants                    Chartered Accountants
 
 Rajesh D Chaturvedi                      Natrajan Ramkrishna
 Partner                                  Partner
 Membership No. 45882                     Membership No. 32815
 
 Mumbai
 30 April 2008