Simbhaoli Sugar Mills

1.  We have audited the attached balance sheet of Simbhaoli Sugars
 Limited as at September 30, 2008 and also the profit and loss account
 and the cash flow statement of the Company 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.
 
 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 misstatements. 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 annex hereto a statement on the matters
 specified in paragraphs 4 and 5 of the said Order.
 
 4.  Further to our comments in the annexure referred to in paragraph
 (3) above:
 
 (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 the
 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 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;
 
 (e) on the basis of written representations received from the directors
 as on September 30, 2008 and taken on record by the Board of Directors,
 we report that none of the directors is disqualified as on September
 30, 2008 from being appointed as a director in terms of clause (g) of
 sub-section (1) of section 274 of the Companies Act, 1956;
 
 (f) without qualifying our opinion, we draw attention to note 9 of
 schedule 18 relating to accounting for cane purchase liability for the
 sugar season 2007-08 at Rs. 110 per quintal instead of State Advised
 Price of Rs. 125 per quintal fixed by the Uttar Pradesh State
 Government.  Pending completion of legal proceedings in the matter, the
 effect thereof on these accounts can not be determined at this stage.
 
 (g) deferred tax assets (net) amounting to Rs.1926.76 lacs have been
 recognised on the basis of future projections taken on record by the
 Board of Directors confirming that sufficient future taxable income
 will be available against which these assets would be realised. We are
 unable to express any view at this stage in the matter (refer note 22
 of Schedule 18).
 
 subject to the foregoing, 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 September 30, 2008;
 
 ii. in the case of the profit and loss account, of the loss for the
 year ended on that date; and
 
 iii. 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 the Auditors Report to the
 Members of Simbhaoli Sugars Limited on the accounts for the year ended
 September 30, 2008.
 
 (i) (a) The Company is maintaining proper records to show full
 particulars, including quantitative details and situation of fixed
 assets.
 
 (b) As explained to us, the Company has a programme of physically
 verifying all its fixed assets over a period of three years, which in
 our opinion is reasonable having regard to the size of the Company and
 the nature of its fixed assets. In accordance with this programme, some
 of the fixed assets were physically verified by the management during
 the year. The discrepancies noticed on such verification between the
 physical balances and the fixed assets records were not material and
 have been properly dealt with in the books of account.
 
 (c) In our opinion and according to the information and explanations
 given to us, a substantial part of the fixed assets has not been
 disposed off by the Company during the year.
 
 (ii) (a) During the year, the inventories have been physically verified
 by the management except for stocks lying with third parties where
 confirmations have been received in most of the cases. In our opinion,
 the frequency of verification is reasonable.  (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) On the basis of our examination of the records of inventory, we are
 of the opinion that, the Company is maintaining proper records of
 inventory. The discrepancies noticed on physical verification of
 inventories as compared to book records were not material and have been
 properly dealt with in the books of account.
 
 (iii) (a) According to the information and explanations given to us,
 the Company had taken unsecured loans from two Directors. The maximum
 amount involved during the year was Rs. 9.11 lacs and the year end
 balance of loans taken was Rs. Nil. 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 Companies
 Act, 1956.
 
 (b) In our opinion, the rate of interest and other terms and conditions
 on which loans have been taken from parties listed in the register
 maintained under section 301 of the Companies Act, 1956 are not, prima
 facie, prejudicial to the interest of the Company.
 
 (c) The Company is regular in repaying the principal amounts and has
 been regular in the payment of interest as per stipulated terms.
 
 (d) There are no amount payable at the year end, therefore, the
 question of overdue amount of loan taken does not arise. Further, the
 Company has not granted loans to parties listed in the register
 maintained under section 301 of the Companies Act, 1956 and, therefore,
 the question of overdue amount of loans granted does not arise.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with the size of the Company and the nature of its
 business with regard to the purchase of inventories and fixed assets
 and with regard to the sale of goods. There are no sales of services.
 Further, on the basis of our examination and according to the
 information and explanations given to us, we have neither come across
 nor have been informed of any instance of major weaknesses in the
 aforesaid internal control procedures.
 
 (v) (a) According to the information and explanations given to us, we
 are of the opinion that during the year, the transactions that were
 required to be entered into the register maintained under section 301
 of the Companies Act, 1956 have been so entered.
 
 (b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements entered in the register maintained under section 301 of
 the Companies Act, 1956 and exceeding the value of rupee five lacs in
 respect of any party during the year have been made at prices which are
 reasonable having regard to prevailing market prices at the relevant
 time.
 
 (vi) In our opinion and according to the information and explanations
 given to us, the Company has complied with the provisions of sections
 58A, 58AA and other relevant provisions of the Companies Act, 1956 and
 the Companies (Acceptance of Deposits) Rules, 1975 with regard to the
 deposits accepted from the public. We are informed that no order has
 been passed by the Company Law Board or National Company Law Tribunal
 or Reserve Bank of India or any Court or other Tribunal in relation to
 the deposits accepted from public by the Company.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with its size and 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. We have not,
 however, made a detailed examination of the records with a view to
 determine whether they are accurate or complete.
 
 (ix) (a) As explained to us, the statutory dues payable by the Company
 comprise of provident fund, investor education and protection fund,
 income-tax, sales tax, wealth tax, service tax, customs duty, excise
 duty, cess, entry tax, and cane purchase tax. According to the records
 of the Company and information and explanations given to us, the
 Company, during the period, has been regular in depositing, aforesaid
 undisputed statutory dues except for tax deducted at source and service
 tax where there have been few delays in depositing these with the
 appropriate authorities. There are no undisputed statutory dues as
 referred to above as of September 30, 2008 outstanding for a period of
 more than six months as on September 30, 2008 from the date they became
 payable.
 
 (b) According to the information and explanations given to us and the
 records of the Company, as at the year end, the following are the
 particulars of disputed dues on account of sales tax (trade tax) and
 excise duty matters that have not been deposited by the Company as at
 September 30, 2008:-
 
 Name of               Nature of       Amount         Amount paid
 the statute            the dues      (Rs. in       under protest
                                         lacs)       (Rs. in lacs)
 
 U. P. Trade           Trade tax         0.43                0.43
 
 Tax Act               Trade tax         3.18                   -
 
                       Trade tax         2.17                1.08
 
                       Trade tax         3.47                1.60
 
                       Trade tax         0.62                0.15
 
 Central                  Excise         0.28                0.28
 Excise Act                 duty
 
                          Excise         0.60                0.60
                            duty
 
                          Excise        11.01                   -
                            duty
 
 State Excise             Excise         9.26                   -
 Act                        duty
 
 Forum where            Period to which
 dispute is pending          the amount
                                relates
 
 Trade Tax Tribunal           1984-1985
 
 Trade Tax Appellate          1995-1996
 Tribunal
 
 High Court                   2000-2001
 
 Trade Tax Tribunal           2001-2002
 
 Trade Tax Appellate          2003-2004
 Tribunal
 
 Customs, Excise &            2004-2005
 Service tax
 Appellate Tribunal
 
 Customs, Excise &            2002-2003
 Service tax
 Appellate Tribunal
 
 Commissioner                 1979-1980
 (Appeal)
 
 High Court,                  2001-2002
 Allahabad
 
 - Amount as per demand orders including interest and penalty wherever
 indicated in order.
 
 (c) In the following instance the concerned statutory authority is in
 appeal against favourable order received by the Company.
  
 Name of the          Nature of the            Amount
 statute                       dues      (Rs. in lacs)
 
 U. P. Trade Tax          Trade tax             59.96
 Act
 
 Forum where             Period to which
 dispute is pending      the amount
                         relates
 
 High Court              1996-1997
 
 - Amount as per demand order including interest and penalty wherever
 indicated in order.
 
 We have been further informed that there are no dues in respect of
 income tax, customs duty, wealth tax, service tax and cess, which have
 not been deposited on account of any disputes.  
 
 (x) In our opinion, the Companys accumulated losses as at the year end
 i.e. September 30, 2008, are not less than fifty percent of its net
 worth. Further, the Company has incurred cash losses during the year
 ended September 30, 2008 and in the immediately preceding financial
 period ended September 30, 2007.
 
 (xi) During the year, after considering the effect of reschedulement of
 repayment terms of borrowings from certain banks, approved by the
 Corporate Debt Restructuring Empowered Group, the details of defaults
 in repayments of dues are as under:
 
                                                        (Rs. In lacs)
 Lender              Amount * (including              Period of delay
                                interest)
 
                                  396.36                       1 - 30
 
 Banks                            215.03                      31 - 60
 
                                  223.01                      61 - 90
 
                                  198.66                     91 - 180
 
 - includes Rs.1022.15 lacs paid during the year, subsequent to due
 date.
 
 (xii) As the Company has not granted any loans and advances on the
 basis of security by way of pledge of shares, debentures and other
 securities, paragraph 4 (xii) of the Order is not applicable.
 
 (xiii) As the Company is not a chit fund / nidhi / mutual benefit fund
 / society, paragraph 4 (xiii) of the Order is not applicable.
 
 (xiv) As the Company is not dealing or trading in shares, securities,
 debentures and other investments, paragraph 4 (xiv) of the Order is not
 applicable.
 
 (xv) According to the information and explanations given to us, the
 Company has given corporate guarantees for loans taken by others from
 bank. In our opinion, the terms and conditions of these guarantees are
 not prejudicial to the interest of the Company.
 
 (xvi) According to the information and explanations given to us, the
 term loans taken 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 report
 that short term funds of Rs.11,433.36 lacs have been used to finance
 fixed assets/operating losses.
 
 (xviii) During the year, the Company has issued 14,96,000 equity shares
 on conversion of equity warrants issued on a preferential basis (refer
 foot note in schedule 1B) as well as 9,600 equity shares under
 Simbhaoli Sugar Limited- Employee Stock Option Scheme 2007, to
 parties covered in the register maintained under section 301 of the
 Companies Act, 1956. In our opinion and according to the information
 and explanations given to us the price at which the equity shares have
 been issued are not pre judicial to the interest of the Company.
 
 (xix) The Company has not issued any debentures during the year.
 
 (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 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 the year ended September 30, 2008.
 
                                               For A.F. FERGUSON & CO
                                                Chartered Accountants
 
 Place : New Delhi                                    Manjula Banerji
 Date  : November 28, 2008                                    Partner
                                                Membership No. 086423