Sakthi Sugars

We have audited the attached Balance Sheet of Sakthi Sugars Limited as
 at 31st December 2008, the Profit and Loss Account and also the Cash
 Flow Statement for the year ended on that date annexed thereto. These
 financial statements are the responsibility of the Companys
 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. 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.
 
 I. As required by the Companies (Auditors Report) Order 2003 issued by
 the Central Government of India in terms of sub-section (4A) of section
 227 of the Companies Act, 1956, we furnish below a statement on the
 matters specified in paragraphs 4 and 5 of the said Order.
 
 i.  In respect of its fixed assets:
 
 a.  The Company has maintained proper records showing full particulars
 including quantitative details and situation of fixed assets on the
 basis of available information.
 
 b.  As explained to us, the fixed assets have been physically verified
 by the management during the year at reasonable intervals and no
 material discrepancies were noticed on such physical verification.
 
 c.  The Company has not disposed of substantial part of its fixed
 assets during the year and the going concern status of the Company is
 not affected.
 
 ii.  In respect of its inventories:
 
 a.  As explained to us, inventory has been physically verified by the
 management at regular intervals during the year.
 
 b.  In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of inventories
 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 has maintained proper records of inventory. As
 explained to us, there were no material discrepancies noticed on
 physical verification of inventory as compared to the book records.
 
 iii. The company has not granted any loans secured or unsecured to
 companies, firms or other parties covered in the register maintained
 under section 301 of the Act. Accordingly, clauses 4(iii)(b) to (g) of
 the Order are not applicable to the company.
 
 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, fixed assets and also for the sale of goods and
 services. During the course of our audit, we have not observed any
 major weaknesses in the internal control system.
 
 v.  In respect of transactions covered under Section 301 of the
 Companies Act, 1956:
 
 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 Act have been entered in the register maintained
 under that section.
 
 b.  In our opinion and according to the information and explanations
 furnished to us, the transactions made in pursuance of such contracts
 or arrangements have been made at prices which are reasonable having
 regard to the prevailing market prices at the relevant time.
 
 vi. In our opinion and according to the information and explanations
 given to us, in respect of the deposits accepted by the company from
 the public, the directives issued by the Reserve Bank of India and the
 provisions of sections 58A and 58AA of the Companies Act, 1956 and
 other relevant provisions of the Act and the rules framed thereunder,
 wherever applicable, have been complied with. No order has been passed
 by the Company Law Board or National Company Law Tribunal or Reserve
 Bank of India or any Court or any other Tribunal.
 
 vii. In our opinion, the internal audit system of the Company is
 commensurate with its size and nature of its business.
 
 viii. The Central Government has prescribed maintenance of Cost Records
 under Section 209(1)(d) of the Companies Act, 1956 in respect of
 certain manufacturing activities of the Company. We have broadly
 reviewed the accounts and records of the Company in this connection and
 are of the opinion, that prima facie, the prescribed accounts and
 records have been made and maintained. We have not, however, made a
 detailed examination of the same.
 
 ix.  In respect of statutory dues:
 
 a.  According to the records of the Company, undisputed statutory dues
 such as Provident Fund, Employees State Insurance, Investor Education
 and Protection Fund, Wealth Tax and Customs Duty have generally been
 regularly deposited with the appropriate authorities. In respect of Tax
 deducted at source, there have been delays, though not serious, in
 depositing the amount with the appropriate authorities. With respect to
 undisputed amounts payable, Income Tax amounting to Rs.332.49 lakhs is
 unpaid as on this date and has been outstanding for a period of more
 than six months as at 31st December 2008.
 
 b.  The disputed statutory dues aggregating to Rs. 4062.82 Lakhs, that
 have not been deposited on account of matters pending before
 appropriate authorities are as under:
 
 Name of the Statue                  Nature of the dues
 
 Tamil Nadu General                  Interest Levied on
 Sales Tax Act, 1959                 Delayed Payment of
                                     Deferred
                                     Purchase Tax
 Tamil Nadu General                  Purchase Tax
 Sales Tax Act, 1959
 Tamil Nadu General                  Interest Levied on
 Sales Tax Act, 1959                 Delayed Payment of
                                     Purchase Tax
 U.P. Trade Tax Act 1948             Sales Tax
 Income Tax Act, 1961                Income Tax
 
 Amount          Period to which         Forum where dispute
 (Rs. in Lakhs)  the amount              is pending
                 relates
 
 803.44          A.Y 1989-90 to           High Court of Madras
                 1992-93
 191.16          AY: 1993-94,             Joint Commissioner
                 2000 -01, 2001-02       (CT) (A), Coimbatore
  28.24          AY : 2000-01             Joint Commissioner
                                         (CT), Coimbatore
   9.95          AY : 1994-95             Trade Tax Tribunal,
                 1995-96                  Meerut Bench-I, Meerut
 333.45          AY : 2006-07             CIT (Appeals),
                                          Coimbatore
 
 Income Tax Act, 1961             FBT
 Bihar & Orissa Excise            Excise Duty
 Act, 1915
 The Central Excise Act, 1944     Excise Duty
 The Central Excise Act, 1944     Excise Duty
 The Central Excise Act, 1944     Excise Duty
 The Central Excise Act, 1944     Excise Duty
 The Central Excise Act, 1944     Excise Duty
 Service Tax Rules, 1994          Service Tax
 Service Tax Rules, 1994          Service Tax
 Service Tax Rules,1994           Service Tax
 Service Tax Rules,1994           Service Tax
 Service Tax Rules,1994           Service Tax
 Service Tax Rules, 1994          Service Tax
 Service Tax Rules, 1994          Service Tax
 Service Tax Rules, 1994          Service Tax
 Service Tax Rules, 1994          Service Tax
 Service Tax Rules, 1994          Service Tax
 Service Tax Rules, 1994          Service Tax
 Orissa Irrigation Act, 1959      Water Tax
 Bombay Stamp Act, 1958           Stamp Duty/
                                  Registration Fees
 
  235.73       AY : 2006-07,            High Court of Madras
               07-08, 08-09,
               and Up to Dec 08
   12.63       Feb 1992 to Nov          High Court of Orissa,
               2005                             Cuttack
   44.74       Jan 07 to Apr 07         Addl. Commissioner
                                        of Central Excise, Salem
    4.50       Aug 07 to Jun 08         Asst. Commissioner of
                                        Central Excise, Cuttack
 1160.12       Sep 06 to June 07        Dept. Appeal before
                                        High Court, Madras
  341.37       Jan 08 to June 08        Commissioner of Central
                                        Excise, Salem
    0.79       Oct 05 to Apr 06         Commissioner of Central
                                        Excise (Appeals), Salem
   93.71       Dec 02-Apr 04            Commissioner of Central
                                        Excise, Madurai
    0.66       Mar 03                  Commissioner of Central
                                        Excise(Appeals), Madurai
   13.67       Jan 05 to Nov 05         CESTAT, Chennai
    4.69       Jan 05 to Jan 06         Asst. Commissioner of
                                        Central Excise, Madurai
   70.20       Apr 06 to July 06        Commissioner of Central
                                        Excise(Appeals), Salem
   30.54       May 07,                  Commissioner of Central
                                        Excise(Appeals), Salem
   38.24       Apr 06 to July 06        Commissioner of Central
                                        Excise, Madurai 
   78.57       Apr 06 to July 06        CESTAT, Chennai
   19.52       Jan 05 to Sep 07         Addl. Commissioner of
                                        Central Excise, Salem
   15.34       Jan 05 to Jan 08         Joint Commissioner of
                                        Central Excise, Madurai
    3.93       Oct 07 to Dec 07         Dy. Commissioner of
                                        Central Excise, Erode
   10.03       Oct 07                   Addl. Commissioner of
                                        Central Excise, Salem
   81.36       May 07 to Sep 07         Commissioner of Central
                                        Excise, Salem
    6.00       2004-05 &                High Court of Orissa,
               2005-06                  Cuttack
  430.24       May 00                   High court of Gujarat,
                                        Ahmadabad
 
 x In our opinion, taking into consideration the quantifiable
 qualifications in our report, the accumulated losses at the end of the
 financial year are not more than 50% of companys net worth. The
 Company has not incurred cash losses during the financial year covered
 by our audit or in the immediately preceding financial year.
 
 xi According to the records of the company examined by us and the
 information and explanations given to us, the Company has defaulted in
 repayment of principal and interest to banks as at the balance sheet
 date, details of which are given below:
 
 Particulars   Principal    Duration               Amount and date
              (Rs. Lakhs)                          of subsequent payment
                                                   (Rs. Lakhs)
 
 Banks         3,000.00     From June 2008
                 673.61     From November 2008
               2,602.61     From December 2008     168.28(02.01.2009)
 TOTAL         6,276.22
 
 Interest
 
 Particulars   Principal    Duration              Amount and date
              (Rs. Lakhs)                         of subsequent payment
                                                  (Rs. Lakhs)
 
 Banks           367.17     From October 2008     367.17
                                                 (29.01.2009, 30.01.2009)
                 478.96     From November 2008    54.45 (03.02.2009)
                 602.55     From December 2008    108.94
                                                 (02.01.2009,03.02.2009)
 TOTAL         1,448.68
 
 xii In our opinion and according to the information and explanations
 given to us, no loans and advances have been granted by the Company 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, clause 4(xiii) of the Companies
 (Auditors Report) Order 2003 is not applicable to the Company.
 
 xiv The company is not dealing or trading in shares, securities,
 debentures and other investments.
 
 xv In our opinion, the terms and conditions on which the company has
 given guarantees for loans taken by others from banks are not
 prejudicial to the interest of the company.
 
 xvi In our opinion, the term loans have been applied for the purpose
 for which they were raised.
 
 xvii 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 during the year the Company has utilised short-term
 funds for long-term investments to the tune of Rs. 55.81 Crores.
 
 xviii During the year, the Company has not made any preferential
 allotment of shares to companies covered in the Register maintained
 under Section 301 of the Companies Act, 1956.
 
 xix According to the information and explanations given to us during
 the period covered by our audit report, the company has issued
 37,15,610 - 12% secured redeemable non-convertible debentures of Rs.
 100 each in respect of which security has been created by the company.
 
 xx The Company has not raised any money by way of public issue during
 the year.
 
 xxi In our opinion and according to the information and explanations
 given to us, no fraud on or by the Company has been noticed or reported
 during the year, that causes the financial statements to be materially
 misstated.
 
 II. The Balance Sheet, Profit and Loss account, Report of Board of
 Directors and Report of Auditors of the subsidiaries and statement of
 holding Companys interest in the subsidiaries are not attached as
 required under section 212(1) of the Companies Act, 1956.
 
 III.  Further to our comments under Para I and II 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 mandatory
 Accounting Standards, referred to in sub-section (3C) of Section 211 of
 the Companies Act, 1956;
 
 v. 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 of the Company is disqualified, as on 31st December 2008,
 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 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 present a true and fair view, in conformity with the
 accounting principles generally accepted in India:
 
 a.  in so far as it relates to Balance Sheet, of the state of affairs
 of the Company as at 31st December 2008;
 
 b.  in so far as it relates to the Profit and Loss Account, of the Loss
 of the Company for the year ended on that date; and
 
 c.  in so far as it relates to the Cash Flow Statement, of the cash
 flows of the Company for the year ended on that date.
 
                                          For P.N. RAGHAVENDRA RAO & Co.
                                              Chartered Accountants
 
                                                   P.R.VITTEL
 PLACE: Coimbatore                                  Partner
 DATE : 19.02.2009                                 M.No.018111