Sobha Developers

1.  We have audited the attached balance sheet of Sobha Developers
 Limited (‘the Company’) as at March 31, 2009 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
 specifiedinparagraphs4and5ofthe said Order.
 
 4.  Without qualifying our opinion, we draw attention to Note 7 in
 Schedule 19 to the financial statements pertaining to an amount of
 Rs.475 million received by the Company from the promoters, as advance
 towards share subscription amount with regard to the proposed rights
 issue. During the year, the Company has obtained an approval from the
 Reserve Bank of India to refund the aforementioned advance by September
 30, 2009. As the Company intends to refund the advance share
 subscription amount, this amount has been recorded under current
 liabilities and accordingly, diluted EPS has been calculated without
 considering dilutive effect of advance share subscription.
 
 5. Without qualifying our opinion, we draw attention to Note 25 under
 Schedule 19, regarding the purchase of material and services in the
 current and prior years from private limited companies/ firms, covered
 under section 297 of the Act. In this regard, the Company is in the
 process of making an application for condonation of delay and obtaining
 approval from the Company Law Board under Section 637B of the Act. The
 ultimate outcome of the Companys application in this regard cannot be
 presently determined. Pending the final outcome, no adjustments have
 been made in this regard, in the financial statements
 
 6.  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, 2009, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 March 31, 2009 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, 2009;
 
 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 inparagraph3 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) The Company has a regular programme of physical verification of
 fixed assets which, in our opinion, is reasonable having regard to the
 size of the Company and the nature of its assets. In accordance with
 this programme, certain fixed assets were physically verified by the
 management during the year and we are informed that no material
 discrepancies were noticed on such verification.
 
 (c) There was no substantial disposal 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) As informed, 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.83.26 million and the
 year-end balance was Rs.83.26 million. 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 not prima facie
 prejudicial to the interest of the Company. According to the
 information and explanations given to us, there are no specific
 covenants with regard to the repayment of the loan and the Company has
 not demanded repayment of the loan or interest during the year, thus,
 there is no overdue amount and there has been no default on the part of
 the party to whom the money has been given.
 
 (b) As informed, the Company has taken loan from one party covered in
 the register maintained under section 301 of the Act. The maximum
 amount involved during the year was Rs.4.53 million and the year end
 balance was Rs.4.50 million. 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 prima facie not
 prejudicial to the interest of the Company. According to the
 information and explanations given to us, there are no specific
 covenants with regard to the repayment of loan. The loan taken is re-
 payable on demand and the repaymentof the principal amount is as
 demanded and 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. Internal controls pertaining to recording of income from real
 estate development needs to be further strengthened to make it
 commensurate with size of the Company and nature of its business.
 During the course of our audit, no major weakness has been noticed in
 the internal control system 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) 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,
 income-tax cess and other material statutory dues applicable to it have
 generally been regularly deposited with the appropriate authorities
 though there have been slight delays in few cases pertaining to tax
 deducted at source and service tax, and significant delay in case of
 corporate dividend tax.
 
 (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 and cess
 were outstanding, at the year end, for a period of more than six months
 from the date they became payable, except undisputed dues in respect of
 corporate dividend tax which was outstanding, at the year end for a
 period of more than six months from the date it became payable, as
 follows:
 
 Name     Nature    Amount  Period to   Due     Date of
 of       of        (Rs.in  which       Date    Payment
 the      dues     Million) amount
                            relates
 statute
 
 Income   Corporate 81.00   2007-08     August   Not yet
 Tax Act  Dividend                     12, 2008  paid
          Tax
 
 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:
 
 Name of       Nature of     Amount       Period to       Forum
 the           dues          (Rs.         which           where
 statute                     in Million)  amount          dispute
                                          relates         is pending
 
 Andhra        Basis of       5.25        2002-04         Sales tax
 Pradesh       charge of                                  appellate
 Sales Tax     sales tax                                  tribunal
 Act
 
 Karnataka     Basis of        -          1997-04         Joint
 Sales Tax     charge of                                  commissioner
 Act           sales tax                                  of
                                                          commercial
                                                          taxes
 
 Income        Differential   3.54         1999-01        High Court
 Tax Act       tax
               treatment
 
 Income        Disallowance  27.80         2004-05        Commissioner
 Tax Act                                                  of in come
                                                          tax (appeals)
 
 Income        Disallowance  53.33         2005-06        Commissioner
 Tax Act                                                  of in come
                                                          tax (appeals)
 
 Finance       Basis of     648.76         2006-08        Central Excise
 Act,1994      valuation                                  and Service
 (Service                                                 Tax Appellate
 Tax                                                      Tribunal
 Provisions)
 
 Finance        CENVAT       94.75          2006-08        Central Excise
 Act,1994       credit                                     and Service
 (Service                                                  Tax Appellate
 Tax                                                       Tribunal
 Provisions)
 
 Finance        Disallowance  4.23           2002-07       Commissioner
 Act,1994                                                  of central
 (Service                                                  excise and
 Tax                                                       service tax
 Provisions)
 
 - NetofRs.71.63 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,the Company has delayed beyond the
 stipulated dates, repayment of dues to debenture holders and banks
 amounting to Rs.820 million and Rs.962 million respectively, for which
 necessary approvals for rescheduling of repayments were obtained from
 the lenders before the year-end. In case of repayment of dues amounting
 to Rs.28 million due to a bank on March 7, 2009, the Company has not
 yet received permission to reschedule repayment of the said amount. The
 Company has not defaulted in repayment of dues to a financial
 institution
 
 (xii) According to the information and explanations given to us and
 based on the documents and records produced 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.
 
 (xiii) According to the information and explanations given to us, 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) According to the information and explanations given to us, 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 not given any guarantee for loans taken by others from bank
 or financial institutions.
 
 (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 and cash flow statement 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, during
 the period covered by our audit report, the Company had issued 120
 debentures, 500 debentures and 2,500 debentures of Rs.10 million, Rs.1
 million and Rs.0.10 million each, respectively.  The Company has
 created security or charge in respect of debentures issued.
 
 (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 course of our audit.
 
                                     For S.R. BATLIBOI & ASSOCIATES 
                                              Chartered Accountants
 
                                               per Sunil Bhumralkar
 
                                                            Partner
                                               Membership No. 35141
 
 Bengaluru, India
 May 18, 2009