Sona Koyo Steering Systems

We have audited the attached Balance Sheet of SONA KOYO STEERING
 SYSTEMS LIMITED (‘the Company’) as at 31st March 2009, the Profit &
 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.
 
 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.
 
 1.  As required by the Companies (Auditor’s Report) Order, 2003, as
 amended by the Companies (Auditor’s Report) (Amendment) Order, 2004
 (together ‘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
 Paragraphs 4 & 5 of the said Order.
 
 2.  Further to our comments in the Annexure referred to in paragraph 1
 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 purpose 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 & 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 & 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. Based on confirmations received from other public Companies in which
 directors of the Company are directors and/or written representations
 made by the directors of the Company as on 31st March, 2009 and taken
 on record by the Board of Directors, we report that none of the
 directors of the Company is disqualified as on 31st March, 2009 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 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 31st March, 2009;
 
 b) in the case of the Profit & Loss Account, of the LOSS 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.
 
 The Annexure referred to in paragraph 1 of the Auditors’ Report of even
 date to the members of Sona Koyo Steering Systems Limited for the year
 ended 31st March, 2009.
 
 On the basis of such checks as we considered appropriate, we further
 report that :
 
 i. (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 (b) All the fixed assets of the Company have not been physically
 verified by the management during the year but there is a regular
 phased programme of physical verification which, in our opinion, is
 reasonable having regard to the size of the Company and nature of its
 fixed assets. No material discrepancies were noticed on such
 verification.
 
 (c) In our opinion, and according to the information and explanations
 given to us, fixed assets disposals during the year were not
 substantial and therefore do not affect the going concern assumption.
 
 ii. (a) Physical verification of inventory, except stocks lying with
 vendors has been conducted by the management at reasonable intervals.
 In respect of inventory lying with vendors, these have been confirmed
 by them. In our opinion, the frequency of such 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 were found reasonable and adequate in
 relation to the size of the Company and the nature of its business.
 
 (c) On the basis of examination of records of the inventory, we are of
 the opinion that the Company is maintaining proper records of
 inventory. The discrepancies noticed on verification between the
 physical stocks and book records, which in our opinion were not
 material have been properly dealt with in the books of account.
 
 ii. According to the information and explanations given to us and on
 the basis of our examination of the books of account, the Company has
 neither granted or taken any loans, secured or unsecured, to or from
 companies, firms or other parties listed in the register maintained
 under Section 301 of the Companies Act, 1956. Accordingly, the
 paragraphs 4 iii(b), 4 iii(c), 4 iii(d), 4 iii(f) and 4 iii(g) of the
 Order are not applicable to the Company.
 
 iv. In our opinion, having regard to the information and explanations
 given to us that some of the inventory items purchased are of
 specialised nature and for which alternative quotations are not
 available, there are adequate internal control procedures commensurate
 with the size of the Company and the nature of its business for the
 purchase of inventory, fixed assets and for sale of goods and services.
 During the course of our audit, no major weaknesses have been noticed
 in the internal controls.
 
 v. Based on the audit procedures applied by us and according to the
 information and explanations given to us, the Company has not entered
 into any transactions during the year that needs to be entered into the
 Register maintained under Section 301 of the Companies Act, 1956.
 
 vi. The Company has not accepted any deposits from the public covered
 under Section 58A, 58AA or any other relevant provisions of the
 Companies Act, 1956.
 
 vii. The Company has an adequate internal audit system, which in our
 opinion, is commensurate with the size of the Company and the nature of
 its business.
 
 viii. We have broadly reviewed the books of account maintained by the
 Company in respect of manufacture of Company’s automotive products
 pursuant to the order 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) According to the information and explanations given to us and
 on the basis of our examination of the books of account, the Company
 has been generally 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, Custom Duty, Excise Duty, Cess and other material statutory dues
 applicable to it. 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,
 Income Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise
 Duty and Cess were outstanding, as at 31st March, 2009 for a period of
 more than six months from the date they became payable.
 
 (b) According to the information and explanations given to us, and on
 the basis of our examination of the books of account, there are no dues
 of Sales Tax, Income Tax, Customs Duty, Wealth Tax, Service Tax, Excise
 Duty and Cess which have not been deposited on account of any dispute.
 
 x. The Company does not have accumulated losses as at 31st March, 2009
 but has incurred cash losses in the current financial year and had not
 incurred any cash losses in the immediately preceding financial year.
 
 xi. Based on our audit procedures and on the information and
 explanations given by the management, we are of the opinion that the
 Company has not defaulted in repayment of dues to banks. There are no
 dues to financial institutions or debenture holders
 
 xii. According to the 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 and other securities.
 
 xiii. The Company is not a chit fund or a nidhi/mutual benefit
 fund/society. Therefore, the provision of this clause of the Companies
 (Auditor’s Report) Order, 2003 is not applicable to the Company.
 
 xiv. According to information and explanations given to us, the Company
 is not dealing or trading in Shares, Securities, Debentures and other
 investments.
 
 xv. According to the information and explanations given to us, the
 Company has not given any guarantee for any loan taken by others from a
 bank or financial institution.
 
 xvi. Based on our audit procedures and on the information and
 explanations given by the management, the term loans have been applied
 for the purpose for which they were raised.
 
 xvii. Based on the information and explanations given to us and on an
 overall examination of the Balance Sheet of the Company as at 31st
 March, 2009, we report that the Company has used part of year end
 amount of Rs. 57.50 crores short term unsecured bridge loans from banks
 to finance the increase in production capacity of the Company.
 
 xviii. Based on the audit procedures performed and the information and
 explanations given to us by the management, we report that the Company
 has made allotment of shares during the year on conversion of
 Preferential Convertible Warrants issued in earlier year to Companies
 covered in the Register maintained under Section 301 of the Companies
 Act, 1956 and the price at which the Equity Shares have been allotted
 is not prejudicial to the interest of the Company.
 
 xix. The Company has no outstanding debentures during the year.
 
 xx. The Company has not raised any money by public issue during the
 year.
 
 xxi. Based on the audit procedures performed and 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.P. Puri & Co.,
                                            Chartered Accountants
 Place : Gurgaon                           (Vidur Puri - Partner)
 Dated : 30th April,  2009                   Membership No. 90163