1 We have audited the attached Balance Sheet of Spice Communications
 Limited (the Company) as at 31 March 2009, the Profit and Loss
 Account and also the Cash Flow Statement of the Company for the period
 1 January 2008 to 31 March 2009 (financial statements), 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 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 (Auditors Report) Order, 2003 (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
 and 5 of the said Order.
 
 4 Further to our comments in the Annexure referred to 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, the Profit and Loss Account and the Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 (D) in our opinion, the Balance Sheet, the Profit and Loss Account and
 the 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;
 
 (E) on the basis of written representations received from the directors
 as on 31 March 2009 and taken on record by the Board of Directors, we
 report that none of the directors is disqualified as on 31 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;
 
 (F) without qualifying our opinion, we draw attention to note B 15(a)
 of schedule 23 to the financial statements. The company has not accrued
 revenue share license fess and spectrum charges on certain items, as
 explained in the aforesaid note, for the period ended 31 March 2009.
 The whole issue of computation of Adjusted Gross Revenue (AGR) is
 being reviewed before the honorable Supreme Court, by Department of
 Telecommunications (DOT) as well as the operators.
 
 The ultimate outcome of this matter cannot be presently reasonably
 determined, and no provision for liability, if any, that may result has
 been made in the financial statements.
 
 5 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 case of the Balance Sheet, of the state of affairs of the
 Company as at 31 March 2009;
 
 (B) in case of the Profit and Loss Account, of the loss of the Company
 for the period 1 January 2008 to 31 March 2009; and
 
 (C) in the case of the Cash Flow Statement, of the cash flows of the
 Company for the period 1 January 2008 to 31 March 2009.
 
 
 
 
 Annexure to the Auditors report
 
 (Referred to in our report of even date)
 
 (i) (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets except for the networking equipment purchased during the year
 which were earlier taken on trial basis, where the company is in the
 process of updating the fixed assets records for its Karnataka Circle.
 
 (b) The Company has a regular programme of physical verification of its
 fixed assets by which all network related fixed assets are verified in
 a phased manner over a period of two years and all other assets are
 physically verified every year. In our opinion, this periodicity of
 physical verification is reasonable having regard to the size of the
 Company and the nature of its assets. Pursuant to this policy, physical
 verification of network equipment and other assets was carried out
 during the current period for Punjab and Karnataka circle.  However, as
 at the date of signing of this report the Company is still in the
 process of reconciling differences if any observed on physical
 verification.  In the opinion of the management the differences, if any
 are not expected to be material.
 
 (c) Fixed assets disposed of during the year were not substantial as
 indicated in note B 12 of schedule 23 and therefore, do not affect the
 going concern assumption.
 
 (ii) (a) The inventory has been physically verified by the management
 during the period. In our opinion, the frequency of such verification
 is reasonable.
 
 (b) The procedures for the 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) The Company is maintaining proper records of inventory. The
 discrepancies noticed on verification between the physical stocks and
 the book records which were not material have been properly dealt with
 in the books of accounts.
 
 (iii) The Company has neither granted nor taken any loans, secured or
 unsecured, to or from companies, firms or other parties covered in the
 register maintained under section 301 of the Companies Act, 1956.
 
 (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 with regard
 to purchase of inventories and fixed assets and with regard to the sale
 of goods and services. In our opinion and according to the information
 and explanations given to us, there is no continuing failure to correct
 major weaknesses in internal control system
 
 (v) (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, the transactions made in pursuance of contracts and
 arrangements referred to in (a) above and exceeding the value of Rs. 5
 lakh with any party during the year have been made at prices which are
 reasonable having regard to the prevailing market prices at the
 relevant time except for purchases of inventories and certain items of
 fixed assets including intangibles which are for the Companys
 specialized requirements for which suitable alternative sources are not
 available to obtain comparable quotations. However, on the basis of
 information and explanations provided, the same appear reasonable.
 
 (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) We have broadly reviewed the books of account maintained by the
 Company pursuant to the rules prescribed by the Central Government for
 maintenance of cost records under section 209(1) (d) of the Companies
 Act, 1956 in respect of the Company and are of the opinion that prima
 facie, the prescribed accounts and records have been made and
 maintained.  However, we have not made a detailed examination of the
 records.
 
 (ix) (a) According to the information and explanations given to us and
 on the basis of our examination of the records of the company, amounts
 deducted/ accrued in the books of account in respect of undisputed
 statutory dues including Provident Fund, Employees State Insurance,
 Wealth tax, Service tax, Customs duty, Revenue Share License fee,
 Spectrum charges, and other material statutory dues have been generally
 regularly deposited during the period by the Company with the
 appropriate authorities, though there have been delays in afew cases.
 As explained to us, the Company did not have any dues on account of
 Investor Education and Protection Fund.
 
 There were no dues on account of cess under section 441A of the
 Companies Act, 1956 since the aforesaid section has not yet been made
 effective by the Central Government.
 
 According to the information and explanations given to us, no
 undisputed amounts payable in respect of Provident Fund, Employees
 State Insurance, Income tax, Sales tax, Wealth tax, Service tax,
 Customs duty, Revenue Share License fee and Spectrum charges, and other
 material statutory dues were in arrears as at 31 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, the dues
 of Sales tax, Service tax, Customs duty that have not been deposited by
 the Company on account of disputes are listed in the Annexure I
 attached herewith. Further there, are no dues on account of wealth tax,
 income tax and excise duty that have not been deposited on account of
 dispute. As explained in (ix) (a) above there are no dues on account of
 cess.
 
 (x) The Companys accumulated losses at the end of the financial period
 exceed 50% of its net worth. The Company has not incurred cash losses
 during the financial period covered by our audit and immediately
 preceding financial year.
 
 (xi) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to its
 bankers or to any financial institutions. The Company did not have any
 outstanding debentures during the period.
 
 (xii) The Company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities.
 
 (xiii) In our opinion and according to the information and explanations
 given to us, the Company is not a chit fund or a Nidhi/ mutual benefit
 fund/ society.
 
 (xiv) According to the 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 loans taken by others from
 banks or financial institutions.
 
 (xvi) As explained to us and on the basis of review of utilisation of
 funds pertaining to term loans on overall basis, the term loans taken
 by the Company have been applied for the purposes for which they are
 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 the Company has used funds raised on short term basis amounting to
 Rs 6,692.77 million for long term investment.
 
 (xviii) The Company has not made any preferential allotment of shares
 to companies/firms/parties covered in the register maintained under
 Section 301 of the Companies Act, 1956.
 
 (xix) The Company did not have any outstanding debentures during the
 year.
 
 (xx) We have verified the end-use of money raised by public issues as
 disclosed in the note 13 of Schedule 23 B to the financial statements.
 As explained to us, out of the total issue proceeds of Initial public
 offering, Rs. 310.39 million has remained unutilized at the year end.
 We are informed that the same will be applied for the purposes for
 which they were obtained.
 
 (xxi) According to the information and explanations given to us, no
 fraud on or by the Company has been noticed or reported during the
 year..
 
 
 
 Name of        Nature of the dues             Amount of
 the                                             demand
 statute                                        (Rs. in
                                               million)
 
 Sales Tax      Sales tax levied on             148.98
 Karnataka      rental charges
 
                Levy of sales tax on             47.21
                Lease rentals and
               activation charges
 
               Levy of sales tax on             26.40
               lease rentals and
               activation charges
 
               Demand on assessment             39.64
              -Sales tax levied on sale
               of SIM cards
 
 Punjab        Penalty for having wrong           3.20
               documents while transferring
               goods within Punjab
 
 VAT           Transfer of right to use          8.56
 Punjab
 
               Transfer of right to use          63.85
 
 Customs       Show cause notice alleging        11.41
 Duty          short levy of customs duty
 Karnataka     on import of communication
               software by Spice - Denial
               of benefit under Notification
               No. 11/1997
 
               Refund claim- Denial of            1.36
               benefit under notification
               No. 16/2000
 
 Entry tax     Refund of excess entry tax         1.36
 Karnataka     under the Karnataka Tax on
               entry of Goods Act,1979
               Entry tax on interstate and        8.92
               imported purchases of
               electronic goods
 
 
 Amount        Period to which
 deposited     the amount
 (Rs. in       relates
 million)
 
 -             1997-98 to
               December 2001
               & April 2002 to
               December 2002.
 -             2001-2002
 -             2002-2003
 -             1996 to 2002
              (Order passed
               for the assessment
               years: 1999-2000;
 -             2000-2001
 0.80          Stock transfer
               note 1183 dated
               12 Nov 2007
 
 1.28          April 2006 to
               March 2007
 
 9.58          April 2007 to
               March 2008
 
 -             Bill of entries
               dated 18
               November 1997
               and 8 January
               1998
 
 1.36          Bill of entry dated
               18 September
               2000
 
 1.36          1996-1997
 
 -             2004-05
 
 Forum where dispute is
 pending
 
 Appellate Tribunal,
 Karnataka.
 
 Karnataka High Court has
 remanded back the case
 to assessing authority.
 
 Karnataka High Court has
 remanded back the case
 to assessing authority.
 
 Karnataka High Court has
 remanded back the case
 to assessing authority.
 
 Assistant Excise &
 taxation commissioner
 
 Assistant Excise &
 taxation commissioner
 
 Reply to the Show cause
 notice filed
 
 Customs, Excise and
 Service tax Appellate
 Tribunal
 
 Customs, Excise and
 Service tax Appellate
 Tribunal
 
 Karnataka High Court
 
 Name of             Nature of the dues             Amount of
 the                                                demand
 statute                                            (Rs. in
                                                    million)
 
 Service tax        Wrong availment of Cenvat         2.93 Plus
 Punjab             credit on Pre-fabricated          Interest
                    Shelter                           and Penalty
 
                    Wrong availment of Cenvat         1.18 Plus
                    credit on Pre-fabricated          Interest
                    Shelter                           and Penalty
 
                    Reversal of Cenvat                9.14
                    credit wrongly availed
                    on Call Centre Services
 
                    Recovery of wrong                 6.61
                    adjustment of service tax
                    Wrong Availment/utilisation       5.49
                    of Cenvat on capital goods
                    (Shelters)
 
                    Recovery of Wrong                 2.31
                    adjustment of service tax
                    Demand of Service Tax on        100.73
                    Interconnectivity Usage
                    Charges
 
                    Wrong availment of                8.59
                    CENVAT credit
 
                    Wrong availment of Cenvat        424.08
                    credit on Capital goods
 Karnataka           Towers and Parts of Towers        0.12
                     Demand for Non-                   2.75
                     Registration under
                     Consulting Engineer service
 
 Wireless            Demand from WPC with             250.08
 Processing          respect to interest on
 Charges             outstanding dues and
 Punjab              penalty including
                     interest thereon
 
 Karnataka          Demand from WPC with             189.68
                    respect to interest on
                    outstanding dues and
                    penalty including interest
                    thereon
 
 Amount             Period to which
 deposited          the amount
 (Rs. in            relates
 million)
 
 -                  September
                    2004 to
                    August 2005
 
 -                  September
                    2005 to
                    March 2006
 
 -                  July 2004 to
                    September 2005
 
 -                  April 2002 to
                    September 2002
 
 -                  October 2006 to
                    September 2007
 
 -                  October 1998
                    to March 1999
 
 -                  1 April 2003 to
                    28 February 2006
 
 -                  October 2007 to
                    March 2008
 
 -                  April 2006 to
                    March 2008
 0.06               September 2004
                    to September 2007
 
 -                  Sept-04 to Apr-06
 
 250.08             February 1999 to
                    December 2001
 
 189.68             February 1999 to
                    December 2001
 
 
 Forum where dispute is
 pending
 
 CESTAT
 (New Delhi)
 
 CESTAT
 (New Delhi)
 
 The Assistant
 Commissioner, Central
 Excise division, Chandigarh
 
 Appeal has been filed with
 High court.
 
 Commissioner (Appeals)
 
 Punjab & Haryana High
 court
 
 Commissioner of Central
 Excise
 
 Commissioner of Central
 Excise,
 
 Central Excise
 Commissionerate,
 Chandigarh
 
 Commissioner of Central
 Excise (Appeals)
 
 Jt. Commissioner of
 Central Excise
 
 Wireless Planning Finance
 branch of DoT
 
 Wireless Planning
 Finance branch of DoT
 
                                                     For B S R & Co.
                                              Chartered Accountants
 
                                                       Akhil Bansal
 Place: Gurgaon                                             Partner
 Date : 17th June, 2009                      Membership No.: 090906