1.  We have audited the attached balance sheet of Sobha Developers
 Limited (the Company) as at March 31, 2011 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.
 
 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 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 (Auditor’s Report) Order, 2003 (as
 amended) 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.
 
 4.  Without qualifying our opinion, we draw attention to Note 25 under
 Schedule 19, regarding the purchase of material and services in the
 prior years from private limited companies/ firms, covered under
 section 297 of the Act, which require prior approval of the Central
 Government. As indicated in the said note, the Company has filed an
 application for compounding and obtaining approval from the Company Law
 Board under Section 621A of the Act. The Company is confident of
 obtaining the approvals, and pending obtaining such approvals, no
 adjustments have been made in the financial statements.
 
 5.  Further to our comments in the Annexure referred to 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 accounting
 standards referred to in sub-section (3C) of section 211 of the
 Companies Act, 1956;
 
 v. On the basis of the written representations received from the
 directors, as on March 31, 2011, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 March 31, 2011 from being appointed as a director in terms of clause
 (g) of sub-section (1) of section 274 of the Companies Act, 1956; and
 
 vi. 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;
 
 a) In the case of the balance sheet, of the state of affairs of the
 Company as at March 31, 2011;
 
 b) in the case of the profit and loss account, of the profit for the
 year ended on that date; and
 
 c) 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 our report of even date Re:
 Sobha Developers Limited
 
 (i) (a) The Company has maintained proper records
 
 showing full particulars, including quantitative details and situation
 of fixed assets.
 
 (b) All fixed assets have not been physically verified by the
 management during the year but there is a regular programme of
 verification which, in our opinion, is reasonable having regard to the
 size of the Company and the nature of its assets. No material
 discrepancies were noticed on such verification.
 
 (c) There was no disposal of a substantial part of fixed assets during
 the year.
 
 (ii) (a) The management has conducted physical verification
 
 of inventory at reasonable intervals during the year.
 
 (b) 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) The Company is maintaining proper records of inventory and no
 material discrepancies were noticed on physical verification.
 
 (iii) (a) The Company has granted loan to one party covered
 
 in the register maintained under section 301 of the Act. The maximum
 amount involved during the year was Rs. 87.11 million and the year-end
 balance was Rs.  87.11 million.
 
 (b) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 such loans are not prima facie prejudicial to the interest of the
 Company
 
 (c) The loans granted are re-payable on demand. We are informed that
 the Company has not demanded repayment of any such loan or interest
 during the year, and thus, there has been no default on the part of the
 parties to whom the money has been lent.
 
 (d) There is no overdue amount of loans granted to companies, firms or
 other parties listed in the register maintained under section 301 of
 the Companies Act, 1956
 
 (e) The Company has taken loan from two parties covered in the register
 maintained under section 301 of the Act. The maximum amount involved
 during the year was Rs.13.45 million and the year end balance was
 Rs.13.45 million.
 
 (f) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 such loan are prima facie not prejudicial to the interest of the
 Company.
 
 (g) The loans taken are re-payable on demand. As informed to us, the
 lenders have not demanded repayment of any such loan during the year,
 and thus, there has been no default on the part of the Company. The
 payment of interest has been regular.
 
 (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 and fixed assets and for the sale of goods and
 services. During the course of our audit, we have not observed any
 major weakness or continuing failure to correct any major weakness in
 the internal control system of the Company in respect of these areas.
 
 (v) (a) According to the information and explanations provided by the
 management, we are of the opinion that the particulars of contracts or
 arrangements referred to in section 301 of the Act that need to be
 entered into the register maintained under section 301 have been so
 entered.
 
 (b) In respect of transactions made in pursuance of such contracts or
 arrangements exceeding value of Rs. 0.50 million entered into during
 the financial year, because of the unique and specialized nature of the
 items involved and absence of any comparable prices, we are unable to
 comment whether the
 
 transactions were made at prevailing market prices at the relevant
 time.
 
 (vi) The Company has not accepted any deposits from the public.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) To the best of our knowledge and as explained, the Central
 Government has not prescribed maintenance of cost records under clause
 (d) of sub-section (1) of section 209 of the Companies Act, 1956 for
 the products of the Company.
 
 (ix) (a) The Company is regular in depositing with appropriate
 authorities undisputed statutory dues including provident fund,
 investor education and protection fund, employees’ state insurance,
 income- tax, sales-tax, excise duty, wealth-tax, service tax, customs
 duty, cess and other material statutory dues applicable to it.
 
 Further, since the Central Government has till date not prescribed the
 amount of cess payable under section 441 A of the Companies Act,1956,
 we are not in a position to comment upon the regularity or otherwise of
 the Company in depositing the same.
 
 (b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of provident fund, investor
 education and protection fund, employees’ state insurance, wealth-tax,
 service tax, sales-tax, income-tax, customs duty, excise duty, cess and
 other material statutory dues were outstanding, at the year end, for a
 period of more than six months from the date they became payable.
 
 (c) According to the records of the Company, the dues outstanding of
 income-tax, sales-tax, wealth-tax, service tax, customs duty, excise
 duty and cess on account of any dispute, are as follows:
 
                                                          Amount*
 Name of the statute      Nature of dues          (Rs. in Million)
   
 Andhra Pradesh Sales     Basis of charge of sales
 Tax Act                  tax                                 5.25
 
 Andhra Pradesh Sales     Basis of charge of sales            1.61
 Tax Ace                  Tax
 
 Karnataka Sales Tax Act  Basis of charge of sales 
                          tax                                70.97
 
 Karnataka Sales Tax Act  Basis of charge of sales
                          tax                                64.55
 
 Income Tax Act           Differential tax treatment          3.54
 
 Income Tax Act           Disallowances                     205.69 
 
 Income Tax Act           Disallowances                       0.04
 
 Finance Act,1994
                          Basis of valuation                 95.67
 (Service Tax Provisions) 
 
 Finance Act,1994 
                          CENVAT credit                     202.94
 (Service Tax Provisions)
 
 Finance Act,1994
                          CENVAT credit                      13.41
 (Service Tax Provisions)
 
 Finance Act,1994
                          Disallowances                       4.23
 (Service Tax Provisions)
 
                                Period to which      Forum where
 Name of the statute            amount relates       dispute is
                                                       pending
 
 Andhra Pradesh Sales Tax Act       2002-04        Sales Tax Appellate
                                                   Tribunal
 
 Andhra Pradesh Sales Tax Act       2005-08        Sales Tax Appellate
                                                   tribunal
 
 Karnataka Sales Tax Act            1998-06        Joint Commissioner
                                                   of Commercial Taxes
 
 Karnataka Sales Tax Act            2003-05        High Court
 
 Income Tax Act                     1999-01        High Court
 
 Income Tax Act                     2005-07        Income Tax Appellate
                                                   Tribunal
 
 Income Tax Act                     2008-09        Assessing Officer
 
 Finance Act, 1994
 (Service Tax Provisions)           2006-08        Central Excise and
                                                   Service Tax Appellate
                                                   Tribunal
 
 Finance Act, 1994
 (Service Tax Provisions)           2005-08        Central Excise and
                                                   Service Tax Appellate
                                                   Tribunal
 
 Finance Act, 1994
 (Service Tax Provisions)           2009-10        Commissioner of
                                                   Central Excise
                                                   and Service Tax
 
 Finance Act, 1994
 (Service Tax Provisions)           2002-07        Commissioner of
                                                   Central Excise and
                                                   Service Tax
 
 
 
 *Net of Rs. 73.45 million, paid under protest
 
 (x) The Company has no accumulated losses at the end
 
 of the financial year and it has not incurred cash losses in the
 current and immediately preceding financial year.
 
 (xi) Based on our audit procedures and as per the information and
 explanations given by the management, we are of the opinion that the
 Company has not defaulted in repayment of dues to a financial
 institution, bank or debenture holders.
 
 (xii) According to the information and explanations given to us and
 based on the documents and records produced before us, the Company has
 not granted loans and advances 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, the provisions of clause
 4(xiii) of the Companies (Auditor’s Report) Order, 2003 (as amended)
 are not applicable to the Company.
 
 (xiv) In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other investments.  Accordingly, the
 provisions of clause 4(xiv) of the Companies (Auditor’s Report) Order,
 2003 (as amended) are not applicable to the Company.
 
 (xv) According to the information and explanations given to us, the
 Company has given guarantee for loans taken by others from bank or
 financial institutions, the terms and conditions whereof in our opinion
 are not prima facie prejudicial to the interest of the Company
 considering Company’s economic interest in such entities.
 
 (xvi) Based on information and explanations given to us by the
 management, term loans (representing loans with a repayment period
 beyond 36 months) were applied for the purpose for which the loans were
 obtained.
 
 (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 no funds raised on short-term basis have been used for long- term
 investment.
 
 (xviii) The Company has not made any preferential allotment of shares
 to parties or companies covered in the register maintained under
 section 301 of the Companies Act, 1956.
 
 (xix) According to the information and explanations given to us, the
 Company has not issued any debentures during the year. The Company had
 created security or charge in respect of debentures issued in prior
 years, which were outstanding during the current year.
 
 (xx) The Company has not raised any money by public issues during the
 year. Accordingly, the provisions of clause 4(xx) of the Order are not
 applicable to the Company.
 
 (xxi) 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 report
 that no fraud on or by the Company has been noticed or reported during
 the year.
 
 
 For S.R. BATLIBOI & ASSOCIATES
 
 Firm registration number: 101049W 
 Chartered Accountants
 
 per Adarsh Ranka
 Partner
 Membership No.: 209567
 
 Bengaluru, India 
 May 10, 2011