1.  We have audited the attached Balance Sheet of Scooters India
 Limited, as at 31st March, 2011 and also the Profit & Loss Account and
 cash flow statement for the year ended on that date annexed thereof.
 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 have conducted our audit in accordance with auditing and
 assurance standards generally accepted in India. These standards
 require that we plan and perform the audit to obtain reasonable
 assurance about whether the financial statements are free from 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,
 significant estimate 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.
 
 3.  As required by the Companies (Auditor''s Report) Order, 2003 as
 amended by the Companies (Audit''s Report) (Amendment) Order, 2004 (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 paragraph 4 & 5 of
 the said order.
 
 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
 Audits;
 
 (b) In our opinion, proper books of accounts as required by the law,
 have been kept, by the company so far as appears from our examination
 of those books;
 
 (c) The Balance Sheet and Profit & Loss Account dealt with by this
 report are in agreement with the books of account;
 
 (d) In our opinion, the said Balance Sheet and Profit & Loss Account
 dealt with by this report comply with the mandatory accounting
 standards referred to in section 211 (3C) of the Companies Act,1956 to
 the extent applicable;
 
 (e) As per the Notification No. GSR 829 (E) dated 21.10.2003 issued by
 the department Company Affairs, disqualification of Directors in term
 of clause (g) of sub-section (1) of Section 274 of the Companies Act,
 1956 is not applicable to the company being a Government Company.
 
 A. In our opinion and to the best of our information and according to
 the explanation given to us the said accounts read together with
 Accounting policies and Notes thereon given in Schedule 20 give the
 information required by Companies Act, 1956, in the manner so required
 and subject to;
 
 (i) Para no. 2 (i) of schedule 20 regarding contingent liability of Rs
 1073.95 lakhs and indeterminate penalty in respect to various claims
 against the company which the company has not acknowledged as debts and
 its consequent effect over profitability/loss of the company.
 
 (ii) Para 2 (ii) of schedule 20 regarding unfavorable arbitration award
 of Rs  192.98 lakhs against the company, the liability of which has not
 been provided in books of accounts and its consequent effect over the
 profitability/ loss of the company.
 
 (iii) Para 2 (iii) of schedule 20 regarding interest payable by the
 company to UPSIC, the amount of which is indeterminate because of
 non-availability of information of amount outstanding from UPSIC and
 its consequent effect over the profitability/loss of the company.
 
 (iv) Para 2 (iv) of schedule 20 relating to cases of 153 employees, the
 amount of which is indeterminate, not provided in books of accounts and
 its consequent effect over the profitability/loss of the company.
 
 (v) Para 2(v) of schedule 20 regarding of demand of Rs 2412 lakhs
 against recovery notice issued by Tehsildar Lucknow which is pending in
 the High Court, Lucknow and its consequent effect over the
 profitability/loss of the company.
 
 *(vi) Para 4 (a) and 4 (b) of schedule 20 regarding loss of Rs 15.50
 lakhsout of investment of Rs 15.50 lakhs in in the Equity share of U.P.
 Instrument Ltd.  and loss of Rs 52.28 lakhs out of investment of Rs 52.28
 lakhs in the equity shares of U.P. Tyres & Tubes Ltd.
 
 (vii) Para 5 of shedule 20 regarding non confirmation of most of the
 balances of debtors/creditors accounts claims recoverable, loans and
 advances material lying with this party, various deposit to
 electricity, custom, court, landlord and other parties and the
 consequent effect from the book balance and the actual balance over the
 profitability/loss to the company.
 
 (viii)Para 8 of schedule 20 regarding non provision of lease rent for
 the period 1983-84 till 2010-11 for land at 64-65, Najafgarh Road, New
 Delhi which has expired in 1982-83 but still in possession of the
 company.
 
 (ix) Para 16(i) of schedule 20 the company paid Rs 192.90 lakhs to
 workmen against revision proposal which was not approved by the Central
 government, but has been shown as recoverable amount from workers.
 
 (x) Para 16 (ii) of schedule 20 the comapny has not made any provision
 as per the guidelines for revision of salary & wages with effect from
 01.01.2007.
 
 (xi) Para 17(ii) of schedule 20 regarding pending allotment of shares
 to central government which has been classified and disclosed as
 Advance against Share Capital.
 
 (xii) Para 26 of schedule 20 regarding complete erosion of net worth of
 the company as on 31st March, 2009 and consequently being declared as
 sick under section 3(1 )(o) of SICA by BIFR on 18th February, 2010.
 
 B.  Subject to the observations given as per no. i to vii referred to
 above we report that;
 
 (i) The Company has neither paid nor made any provision for the capital
 filing fees on account of increase of Authorized Share Capital from Rs 8
 Crore to Rs 75 Crores and consequent interest/penalties thereupon. The
 losses of the company are understated by the amount of the same.
 
 (ii) In absence of the certainty of the estimates of amount involved in
 various legal cases, we are unable to comment upon the correctness of
 amount of the contingent liabilities as given schedule 20 and its
 consequent effect over the losses of the company.
 
 (iii)The Company should take stringent action for recovery of
 outstanding/ Recoverable against which 100% provisioning has already
 been made in the earlier years by deciding a approved policy for the
 same.
 
 (iv) The company has defaulted in repaying the installment of Term loan
 of Rs 3731.86 lakhs as well as interest of Rs 941.88 lakhs thereupon,
 payable to Government of India.
 
 (v) The company has made statutory contravention by defaulting on
 salary & wages amounting to ^ 294.45 lakhs and therefore not depositing
 Rs 167.53 lakhs of -P.R/Pension to the trust/P.F. authorities.
 
 (vi) There is unfunded liability of Rs 38.00 lakhs on account of
 retirement benefit according to actuarial valuation.
 
 (vii) The company has booked minimum royalty due Rs 30.37 lakhs as
 income, as FWL, Lambretta Trademark licencee of SIL has stopped payment
 of royalty due & has also stoped providing turnover figure. Accordingly
 the loss of the Company may be considered as understated by the said
 amount.
 
 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 Profit & Loss Account, of the Loss of the year
 ended on that date; and
 
 (iii) In the case of Cash Flow Statement, of the cash flows of the year
 ended on thatdate.
 
 ANNEXURE TO THE AUDITOR''S REPORT OF SCOOTERS INDIA LTD.. LUCKNOW
 (Refer to in paragraph 3 of our report of even date)
 
 (i) (a) The Company is maintaining proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) As informed, all the fixed assets have not been physically verified
 by the management during the year but there is a phased programme of
 verification which in our opinion is reasonable having regards to the
 size of the Company and nature of its business. No material
 discrepancies were noticed on such verification.
 
 (c) As informed, the Company has not disposed of substantial part of
 fixed assets during the year thereby affecting the going concept status
 of the Company.
 
 (ii) (a) As explained to us, the company has conducted physical
 verification of the stores * (excluding the inventory with third
 parties) as per the system of continuous physical verification of the
 inventory adopted during the year and finished goods and work in
 progress at the end of the year, which is considered to be reasonable.
 
 (b) In our opinion and according to information and explanations given
 to us, 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) According to information and explanations given to us, the
 discrepancies noticed on physical verification of inventory conducted
 by the management from time to time as compared to book records were
 not material and have been properly dealt with in the books of
 accounts.
 
 (iii) (a) According to information and explanations given to us, the
 Company has not granted any loan, secured or unsecured, to the
 companies, firms or other parties covered in the register maintained
 under section 301 in the Act.
 
 (b) According to information and explanations given to us, the Company
 has not taken any loan, secured or unsecured to the companies, firms or
 other parties covered in register maintained under section 301 in the
 Act.
 
 (iv) In our opinion and according to information and explanations given
 to us, there are adequate internal control systems 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. During
 the course of Audit, we have not observed any major weaknesses in
 control system.
 
 (v) According to information and explanations given to us, the company
 has not made any contracts or arrangements that need to be entered in
 register referred to in Section 301 of the Act.
 
 (vi) As informed and as per records, the company has not accepted any
 deposits from the public during the year.
 
 (vii) In our opinion, the company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) We have broadly reviewed the accounts and records maintained by
 the company pursuant to the order made by the Central Government for
 the maintenance of Cost Records under section 209 (i) (d) of the Act
 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 records with a view to determine whether
 they are accurate and complete.
 
 (ix) (a) As per records, the Company is regular in depositing
 undisputed statutory dues including provident Fund, Investor Education
 and Protection Fund, Employees State Insurance, Income Tax, Sales Tax,
 Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and any other
 statutory dues, to the extent applicable to it, although defaulting on
 salary & wages amounting to Rs 294.45 lakhs and therefore not depositing
 Rs 167.53 lakhs of PR/Pension to the trust/PR Authorities, with the
 appropriate authorities and as informed no undisputed amount were
 outstanding as at 31st March, 2011 for a period of more than six months
 from the date of becoming payable, except the following;
 
 SI.  Name of the Status    Nature of dues     Period        Amount
 No.                                                      (Rs In Lakhs)
 
 1.   Kerala Sales Tax      State Sales Tax    92-93, 
                                               93-94 & 
                                               94-95         4.22
 
 2.  Uttar Pradesh          Central Sales Tax  07-08         0.12
 
                                               Total         4.34
 
 (b) The disputed statutory dues aggregating Rs 236.03 lakhs plus further
 penalty indeterminate that have not been deposited on account of
 matters pending before appropriate authorities are as under:
 
 SI.  Name of the dues      Nature of           Forum where
 No.  the dues              dispute is 
                            pending
 
 1.(a) State Sales Tax      Sales Tax &       Dy. Com. (Appeal)
       Acts                 Interest          (Appeal)
 
   (b) State Sales Tax      Sales Tax         Asstt. Com.  
       Acts                                   (Appeal)
 
   (c) State Sales Tax      Entry Tax &       Comm. of 
       Acts                 Penalty           Commercial Taxes
 
   (d) State Sales Tax      Entry Tax &       Tribunal ActsPenalty
 
 2 (a) Central Sales Tax    Central Sales     Dy. Com. (Appeal) 
       Acts                 Tax & Interest
 
   (b) Central sales Tax    Central Sales      Asstt. Com.
       Act                 Tax                (Appeal) (C.T.)-V
 
 3 (a) Central Excise &     Service Tax         Commissioner Setvice 
                                               (Appeals)
 
   (b) Central Excise &     Service Tax        Commissioner 
       Service Tax                             (Appeals)
 
   (c) Central Excise &     Central Excise     Joint Comm.  
       Service Tax                             (Review)
 
   (d) Central Excise &     Central Excise     Commissioner 
       Service Tax                             (Appeals)
 
   (e) Central Excise &     Central Excise     Commissioner 
       Service Tax                              (Appeals)
 
   (f) Central Excise &     Central Excise     Commissioner 
       Service Tax                              (Appeals)
 
   (g) Central Excise &     Central Exicise    Commissioner 
       Service Tax                               (Appeals)
 
   (h) Central Excise &     Central Excise     Commissioner
       Service Tax                               (Appeals)
 
   (i) Central Excise &     Central Excise     Asst. Comm.  
       Service Tax
 
   (j) Central Excise &     Central Excise     Commissioner 
       Service Tax                               (Appeals)
 
 SI.  Name of the dues 
 No.                         Period              Amount
                                              (Rs In Lakhs)
 
 1. (a) State Sales 
    Tax Acts           77-78,86-87,87-88,92-93,   25.02
                          93-94,96-97,98-99
 
    (b) State Sales 
    Tax Acts                  01-02                0.29
 
    (c) State Sales 
    Tax Acts              97-98 to 06-07         113.77
 
    (d) State Sales 
    Tax Acts             03-04, 04-05, 05-06      10.55
 
 2 (a) Central Sales 
    Tax Acts               82-83 & 86-87          11.30
                           92-93 & 93-94
 
   (b) Central sales 
    Tax Act                    93-94               7.%8
 
 3 (a) Central Excise &
   Setvice                   Oct. 2002-            7.91  
                             Mar. 2007         Further Penalty
                                               Indeterminate
 
   (b) Central Excise & 
       Service Tax           Apr. 2007             0.70  
                             Mar. 2008         Further Penalty
                                               Indeterminate
 
   (c) Central Excise &
      Service Tax            Jan. 2006             0.32
 
   (d) Central Excise &
      Service Tax            2001-02               2.98
 
   (e) Central Excise &
       Service Tax           2001-02              10.83
 
   (f) Central Excise &
       Service Tax           2005-06 to           10.72   
                                                  10.72
                             2008-09              Penalty
 
   (g) Central Excise &
      Service Tax           Apr. 2009-            2.19 2.19
                            Sept. 2009            Penalty
 
  (h)  Central Excise &
       Service Tax          Oct. 2009-            1.07 1.07
                            Mar. 2010             Penalty
 
  (i)  Central Excise &
      Service Tax           Apr. 2010-            1.99 1.99
                           Sept. 2010             Penalty
 
  (j)  Central Excise &
       Service Tax          2005-06 to            6.27 6.27
                            2008-09                Penalty
 
                                                   236.03 
                             Total:                Further Penalty
                                                   Indeterminate
 
 (x) The Company has an accumulated losses of Rs 1,016,261,248 at the end
 of the financial year and has incurred cash losses in the financial
 year under report and also in the immediately preceding financial year.
 The accumulated losses of the Company are more than fifty percent of
 its net worth.
 
 (xi) In our opinion and according to information and explanations given
 to us, the company has not defaulted in repayment of dues to financial
 institutions or bank or debentures holders.
 
 (xii) According to 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 or other securities.
 
 (xiii) In our opinion Company is not a Chit Fund or a Nidhi/Mutual
 Benefit Fund/Society.  Therefore, the provision of clause 4(xiii) of
 the Order is not applicable to the company.
 
 (xiv) In our opinion and according to information and explanation given
 to us, the Company is not dealing or trading in clause 4 (xiv) of the
 order is not applicable to the Company.
 
 (xv) According to information and explanation given to us the company
 has not given any guarantee for the loans taken by others from bank or
 financial institutions.
 
 (xvi) According to information and explanations given to us, the
 company has received a non plan term loan amounting to Rs 3272.66 lakhs
 from Government of India in financial year 201,0-11, which has since
 been utilized as per terms of the sanction letter. ;
 
 (xvii) According to information and explanations given to us, and on an
 overall examinations of the Balance Sheet, we are of the opinion that
 funds raised on short terms basis have, prime-facie, not been used
 during the year for long term investment.
 
 (xviii) According to information and explanations given to us, the
 company has not made any preferential allotment of shares to parties
 and companies covered in the Registered maintained under section 301 of
 the Act.
 
 (xix) According to information and explanations given to us, the
 company has not issued any debentures, thereof; the question of
 creation of securities or charges in respect of debentures issued is
 not applicable.
 
 (xx) The Company has not raised any money by way of public issue during
 the year.
 
 (xxi) Based upon the audit procedures performed and information given
 to us, we report that no fraud on or by the company has been noticed or
 reported during the year by management. However, checking of minutes of
 the Board of Directors revealed that a commercial agreement was
 executed by the CMD without the authority of the Board and after due
 consideration the board decided to refer the matter of the appropriate
 authority for further action.
 
                                          For S. Srivastava & Co.  
                                           Chartered Accountants
 
 Place: Lucknow                               Sanjeev Srivastava
 
 Dated : 25.07.2011                                   Partner
 
                                                   M.No. 073449