1.  We have audited the attached Balance Sheet of Spentex Industries
 Limited, as at March 31, 2012 and the related Statement of Profit and
 Loss and Cash Flow Statement for the year ended on that date annexed
 thereto, which we have signed under reference to this report. 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 the auditing standards
 generally accepted in India. Those standards required 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 by the Companies(Auditor''s Report) (Amendment) Order, 2004,
 issued by the Central government of India in terms of sub-section(4A)
 of Section 227 of The Companies Act, 1956 of India(the Act) and on the
 basis of such checks of the books and records of the Company as we
 considered appropriate and according to the information and
 explanations given to us, we further report that:
 
 3.1 a) The Company is maintaining proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 b) The fixed assets are physically verified by the management according
 to a phased programmed designed to cover all the items 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 assets. Pursuant to the
 programme, a portion of the fixed assets has been physically verified
 by the management during the year and no material discrepancies between
 the books records and physical inventory have been noticed.
 
 c) In our opinion and according to the information and explanations
 given to us, a substantial part of fixed assets has not been disposed
 of by the Company during the year.
 
 3.2 a) The inventory other than inventory lying with third party has
 been physically verified by the management during the year. In our
 opinion, the frequency of verification is reasonable.
 
 b) In our opinion, 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) On the basis of our examination of the inventory records, in our
 opinion, the Company is maintaining proper records of inventory. The
 discrepancies noticed on physical verification of inventory as compared
 to book records were not material.
 
 3.3 a) 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 Act. Accordingly, paragraph 4(iii)(b),
 4(iii)(c), 4(iii)(d) of the order are not applicable.  b) The company
 has not taken any loans, secured or unsecured, from companies, firms or
 other parties covered in the register maintained under Section 301 of
 the Act. Accordingly, paragraph 4(iii) (f) and 4(iii) (g) of the order
 are not applicable.
 
 3.4 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, fixed assets and for the sale of goods. Further,
 on the basis of our examination of the books and records of the
 company, and according to the information and explanations given to us,
 we have neither come across nor have been informed of any continuing
 failure to correct major weakness in the aforesaid internal control
 system.
 
 3.5 a) In our opinion and according to the information and explanations
 given to us, the particulars of contracts or arrangements referred to
 in Section 301 of the Companies Act 1956 have been entered in the
 register required to be maintained under that section.
 
 b) In our opinion and according to the information and explanations
 given to us, there were no transactions made in pursuance of contracts
 or arrangements entered in the register maintained under Section 301 of
 the Companies Act, 1956 exceeding the value of Rupees Five Lakhs or
 more in respect of any party during the year other than those reported
 in para
 
 3.18 below pursuant to paragraph 4 (xviii) of the Companies (Auditor''s
 Report) Order, 2003.
 
 3.6 The Company has not accepted any deposits from the public within
 the meaning of Section 58A and Section 58AA of the Act and the rules
 framed there under.
 
 3.7 In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 3.8 We have broadly reviewed the books of account, maintained by the
 Company in respect of products where, pursuant to the Rules made by the
 Central Government of India, the maintenance of cost records has been
 prescribed under clause (d) of sub section (1) of Section 209 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 or complete.
 
 3.9 a) The company is regular in depositing with appropriate
 authorities undisputed statutory dues including provident fund,
 investor education and protection fund, employees state insurance,
 sales tax, income tax, service tax, wealth tax, custom duty, excise
 duty, cess and other statutory dues applicable to it. According to the
 information and explanation given to us, no undisputed amounts payable
 in respect of aforesaid dues were in arrears as at March 31, 2012 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 the
 records of the Company examined by us, the particulars of dues of
 income tax, sales tax, entry tax, service tax and excise duty at March
 31, 2012, which have not been deposited on account of dispute, are as
 follows:
 
 Name of the   Nature of
               dues       Amount(Rs.)   Period to 
                                        which       Forum where the
 statute                                the amount  dispute is pending
                                        relates
 
 Sales Tax
 
 The M.P.      Penalty -   
               Purchase   164,195       2004-05     First Appellate 
                                                    Authority
 Commercial 
 Tax           tax 
               demand    (including 
                          amount
 Act, 1994                paid Rs.
                          164,195)
 
 The M.P. 
 Commercial    Sales Tax 
               Demand     815,157
                         (including     2009-10     First Appellate 
                                                    Authority 
 Tax Act, 
 1994                     amount 
                          paid
                          Rs.815,157)
 
 The M.P. 
 Commercial    Sales tax 
               demand on  1,970,233     2001-03     Assessing Authority 
                                                    Indore
 Tax Act, 1994 sale of 
               DEPB 
               licenses                 2009-10
 
 Entry Tax
 Act, 1976     Entry tax  
               demand     1,538,453 
                         (including     1992-2008   Assessing Authority 
                                                    Indore
                          amount paid 
                          Rs. 414,844)
 
 Income tax
 
 Income Tax 
 Act, 1961     Disallo
               wance of   10,875,657    A.Y. 
                                        2001-02     Income Tax
                                                    Tribunal Delhi
               goodwill 
               amorti
               sation    (including 
                          amount        A.Y. 
                                        2003-04     Bench - Rs.
                                                    3,981,354
               & other 
               expenses   paid Rs.
                          3,981,354) 
                                                    High Court - 
                                                    Rs. 6,894,303
 
 The Income 
 Tax           Disallo
               wances of  27,095,747    A.Y. 
                                        2003-04     Commissioner of
                                                    Income Tax
 Act,1961      various 
               expenses 
               viz.      (including 
                          amount        A.Y. 
                                        2005-06    (Appeal), New Delhi
               sales tax 
               subsidy, 
               etc.       paid 
                          Rs.2,000,000) A.Y. 
                                        2006-07
 
 Central Excise and Service Tax Act
 
 Central 
 Excise        Excise
               duty 
               demands    10,806,176    June 1999 
                                        to          Customs, Excise & 
                                                    Service Tax
 Act, 1944    (Baramati 
               unit)                    Dec 2001    Appellate Tribunal,
                                                    Mumbai
 
 Central 
 Excise        Excise
               duty 
               demands    27,861,240    Apr-00 to 
                                        Sept-01     Customs, Excise & 
                                                    Service Tax
 Act, 1944    (Ahmedabad 
               unit)                    and Feb-01 
                                        to          Appellate Tribunal, 
                                                    Ahmedabad
                                        Dec-01
 
 Central 
 Excise        Excise
               duty 
               demands    1,565,015 
                         (including     Feb-04      Customs, Excise & 
                                                    Service Tax
 Act, 1944    (Ahemdabad 
               unit)      amount paid               Appellate Tribunal,
                                                    Ahmadabad
                          Rs.1,565,015)
 
 The Central 
 Excise        Excise 
               duty-
               demand     75,185,214    Aug, 2004 
                                        to          Deputy
                                                    Commissioner of
                                                    Central
 Act, 1944     of duty 
               on 
               clearance (including 
                          amount        Apr, 2007   Excise, Nagpur - 
                                                    Rs. 77,371
               of goods 
               under      paid Rs.
                          2,314,143) 
               notifi
               cation
               30/2004                              Commissioner, Central
                                                    Excise Nagpur
               without 
               payment of                           - Rs.72,693,700
               duty 
              (Butibori
               unit) 
 
                                                    Customs, Excise &
                                                    Service Tax Appellate
                                                    Tribunal - 
                                                    Rs. 2,414,143
 
 The Central 
 Excise        Cenvat 
               demand 
               for        168,012       April, 
                                        2000 -      Commissioner
                                                   (Appeals), Central
 Act, 1944     packing 
               material                 March,
                                        2004        Excise, Indore
               including
               penalty
              (Pithampur 
               unit)
 
 The Central 
 Excise        Cenvat 
               demand on  653,853       April, 
                                        2003 -      Customs, Excise & 
                                                    Service Tax
 Act, 1944     packing 
               material/ (including 
                          amount        November, 
                                        2009        Appellate Tribunal
                                                    Rs. 180,167
               scrap 
              (Butibori
               unit)      paid Rs. 
                          4,006)
 
                                                    Commissioner
                                                   (Appeals), Nagpur - 
                                                    Assistant 
                                                    Commissioner - 
                                                    Rs. 8,012
 
                                                    Deputy Commissioner,
                                                    Central Excise, 
                                                    Nagpur - Rs. 465,674
 
 The Central 
 Excise        Cenvat 
               on 
               samples    278,584 
                         (including     Apr, 2003 
                                        to          Customs, Excise & 
                                                    Service Tax 
 Act, 1944     used in 
               quality 
               control    amount
                          paid          Aug, 2009   Appellate Tribunal,
                                                    Nagpur -
              (Butibori 
               unit)      Rs. 67,597)               Rs. 117,762
 
                                                    Deputy Commissioner,
                                                    Central Excise,
                                                    Nagpur - Rs. 160,822
 
 The Central 
 Excise        Demand 
               for
               Cenvat     11,032,499    Apr, 2003 
                                        to          Deputy Commissioner
                                                    of Central
 Act, 1944     reversal 
               of 
               furnace 
               oil                      Aug, 2006   Excise, Nagpur - Rs.
                                                    694,852
               used in 
               generation 
               of       
               electri
               city on 
               job-work                             Customs, Excise & 
                                                    Service Tax
              (Butibori 
               unit)                                Appellate Tribunal -
                                                    Rs. 10,337,647
 
 The Central 
 Excise        Refund of 
               cenvat on  60,216,366    Oct, 2004
                                        to          Commissioner 
                                                   (Appeals), Central
 Act, 1944     inputs 
               under 
               Rule 18                  Jan, 2006   Excise, Indore 
              (Pithampur
               unit)
 
 The Central 
 Excise        Rejection 
               export     1,793,732     Jun, 2006 
                                        to          Assistant 
                                                    Commissioner of 
                                                    Central
 Act, 1944     claims                   Jan,2007    Excise, Nagpur
 
 Finance
 Act, 1994     Refund 
               against    1,987,938     2006-10     Assistant
                                                    Commissioner of 
                                                    Central
               export 
               services                             Excise, Nagpur
 
 The Central 
 Excise        Excise 
               duty -
               demand     53,291,002    March, 
                                        2004 to     High Court , Indore 
 Act, 1944     of duty
               on 
               clearance (including 
                          amount        Feb, 2007
               of goods 
               under      paid Rs.13,
                          322,751)
               notifi
               cation 
               30/2004 
               without
               payment 
               of duty 
              (Pithampur 
               unit)
 
 The Central 
 Excise        Duty on 
               Yarn       1,203,102     2006        Customs, Excise &
                                                    Service Tax
 Act, 1944                                          Appellate Tribunal 
                                                    - Rs. 510,140
 
                                                    Commissioner 
                                                   (Appeals), Central 
                                                    Excise, Indore -
                                                    Rs. 692, 962
 
 The Central 
 Excise        Cenvat on 
               Capital    2,703,762     2002-2003   Additional
                                                    Commissioner of
                                                    Central
 Act, 1944     Goods                                Excise, Nagpur -
                                                    Rs. 2,551,564
 
                                                    Deputy Commissioner
                                                    of Central Excise 
                                                    - Rs. 152,198
 
 Professional
 Tax
 
 Professional 
 Tax Act       Interest 
               on         36,433
                         (including      2006-07    Deputy Commissioner
                                                   (Professional
               Professi
               onal  
               Tax        amount 
                          Paid                      Tax)
                          Rs. 36,433)
 
 3.10 The Company has accumulated loss as at March 31, 2012 which, read
 with comments in para 4 of our report, are more than fifty percent of
 its net worth. The company has incurred cash losses in the financial
 year ended on that date but has not incurred cash losses in the
 immediately preceding financial year.
 
 3.11 According to the records of the Company examined by us and the
 information and explanation given to us, based on our audit procedures,
 we are of the opinion that the company has not defaulted in repayment
 of dues to financial institutions, banks or debenture holders during
 the year.
 
 3.12 The Company has not granted any loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 
 3.13 The provisions of any special statute applicable to chit fund/
 Nidhi/ mutual benefit fund/ Societies are not applicable to the
 Company.
 
 3.14 In our opinion, the Company is not a dealer or trader in shares,
 securities, debentures and other investments.
 
 3.15 In our opinion and according to the information and explanations
 given to us, the terms and conditions of the guarantees given by the
 Company, for loans taken by others from banks or financial institutions
 during the year, are not prejudicial to the interest of the Company.
 
 3.16 In our opinion, and according to the information and explanations
 given to us, no new term loan has been obtained during the year.
 
 3.17 On the basis of an overall examination of the balance sheet of the
 company, in our opinion and according to the information and
 explanations given to us, there are no funds raised on short term basis
 which have been used for long-term investment.
 
 3.18 According to the information and explanations given to us, the
 company has made preferential allotment of shares to a company covered
 in the register maintained under section 301 of the Act. In our
 opinion, the price at which shares have been issued is not prejudicial
 to the interest of the company.
 
 3.19 The Company has created security or charge in respect of
 debentures issued and outstanding at the year end.
 
 3.20 The Company has not raised any money by public issue during the
 year.
 
 3.21 During the course of our examination of the books and records of
 the Company, carried out in accordance with the generally accepted
 auditing practices in India, and according to the information and
 explanations given to us, we have neither come across any instance of
 fraud on or by the Company, noticed or reported during the year, nor
 have we been informed of such case by the management.
 
 4.  We draw attention to:
 
 Note 41 of the financial statements, wherein, we are unable to
 determine the extent of provision that may be required for diminuition
 in the value of long term investment amounting to Rs. 20,44,69,921 in
 Amit Spinning Industries Limited subsidiary of the company. Further,
 uncertainities exist in relation to the recoverability of loans
 amounting to Rs. 32,01,28,019, interest accrued thereon Rs. 9,59,50,582
 and advances amounting to Rs. 5,76,20,907 due from above subsidiary.
 
 Note 44 of the financial statements, wherein, we are unable to
 determine the extent of provision that may be required for diminuition
 in the value of long term investment amounting to Rs. 56,10,11,339 in
 Spentex Netherland B.V.  subsidiary of the company. Further,
 uncertainities exist in relation to the recoverability of advance
 amounting to Rs. 9,50,70,902 due from above subsidiary
 
 Note 44 of the financial statements, wherein, we are unable to
 determine the extent of provision that may be required for diminuition
 in the value of long term investment amounting to Rs. 93,23,779 in
 Spentex Tashkent Toytepa LLC subsidiary of the company. Further,
 uncertainities exist in relation to the recoverability of debtor
 amounting to Rs. 7,00,12,404 due from above subsidiary and also in
 relation to recoverability of export incentive amounting to Rs
 26,95,093.
 
 The impact due to above observations on the financial statements could
 not be ascertained.
 
 5.  Further to our comments in paragraphs 4 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
 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
 those books;
 
 (c) The Balance Sheet, Statement of Profit and Loss and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 (d) In our opinion, the Balance Sheet, Statement of Profit and Loss 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 Act;
 
 (e) On the basis of written representations received from the
 directors, as on March 31, 2012 and taken on record by the Board of
 directors, none of the directors is disqualified as on March 31, 2012
 from being appointed as a director in terms of clause
 
 (g) of sub-section (1) of Section 274 of the Act;
 
 (f) In our opinion and to the best of our information and according to
 the explanations given to us, the said financial statements together
 with the notes thereon and attached thereto give in the prescribed
 manner the information required by the Act and subject to our remarks
 in paragraph 4 above, 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 March 31, 2012;
 
 (ii) in the case of the Statement of Profit and Loss, of the Loss for
 the year ended on that date; and
 
 (iii) in the case of the Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
                                            For J.C. Bhalla & Company 
 
                                                Chartered Accountants 
 
                                              Firm Regn. No. 001111-N
 
                                                        (Akhil Bhalla)
 
 Place : New Delhi                                            Partner
 
 Dated : August 9, 2012                          Membership No.505002